Search Results

Found 484 results in Technology

New study rips into cobalt, lithium price bulls

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Prominent commodities research house Wood Mackenzie this week released a report on battery materials that forecasts a decline in the price of cobalt and lithium this year which would turn into a rout from 2019 onwards.

Woodmac is not lowballing demand growth for lithium and the authors expect demand to grow from 233 kilotonnes (kt) in 2017 to 330kt of lithium carbonate equivalent in 2020 and 405kt in 2022, but:

… the supply response is under way. Yet it will take some time for this new capacity to materialise as battery-grade chemicals. As such, we expect relatively high price levels to be maintained over 2018. However, for 2019 and beyond, supply will start to outpace demand more aggressively and price levels will decline in turn.

According to Woodmac data, spot lithium carbonate prices on the domestic market in China are already down 6% from December levels to around $24,500 a tonne while international market prices have remained robust rising to $16,000 at the end of February.

Lithium and cobalt represent the freshest iterations of the supply inelasticity meets rising demand condition that contributes to the cyclicality of mining ventures. Batteries are now big business and with Volkswagen saying this week that it is willing to outspend Tesla on batteries by the early 2020s the demand portion of the market is well affirmed.

Long-term themes review March 7th 2018

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Volkswagen Steps Up Tesla Rivalry in $25 Billion Battery Buy

This article by Chris Reiter and Christoph Rauwald for Bloomberg may be of interest to subscribers. Here is a section:

Volkswagen AG secured 20 billion euros ($25 billion) in battery supplies to underpin an aggressive push into electric cars in the coming years, ramping up pressure on Tesla Inc. as it struggles with production issues for the mainstream Model 3.

The world’s largest carmaker will equip 16 factories to produce electric vehicles by the end of 2022, compared with three currently, Volkswagen said Tuesday in Berlin. The German manufacturer’s plans to build as many as 3 million of the cars a year by 2025 is backstopped by deals with suppliers including Samsung SDI Co., LG Chem Ltd. and Contemporary Amperex Technology Ltd. for batteries in Europe and China.

With the powerpack deliveries secured for its two biggest markets, a deal for North America will follow shortly, Volkswagen said. In total, the Wolfsburg-based automaker has said it plans to purchase about 50 billion euros in batteries as part of its electric-car push, which includes three new models in 2018 with dozens more following.

Volkswagen needs a new strategy if it is going to get past the diesel scandal, so embracing batteries whether for all-electric or hybrid vehicles is a solution. By committing to such a large purchase of batteries it will overtake Tesla as the largest consumer and this announcement helps to backstop demand for the world’s largest battery producers as well as the miners that produce the requisite metals.

China was making headlines today because Xi Jinping’s bid to remain in power following the end of his official term was rubber stamped by the People’s Congress today. It has been a key object of Xi’s to do everything possible to ensure China sits on a level playing field with the USA on the international stage. Modernisation of the military, greater surveillance of the domestic population, strengthening the nation’s censorship of the internet, the Belt and Road infrastructure program, dominating international engagement with African countries, spending on research and development and infiltration of university campuses in the OECD are all part of that plan.

Bigger U.S. Auctions in Shorter Time Seen Boosting Yields

This note by Brian Chappatta for Bloomberg may be of interest to subscribers. Here is a section:

Bond traders have to contend with both larger auction sizes and a condensed schedule when the U.S. Treasury sells $28 billion of three-year notes and $21 billion of 10-year notes on March 12. To JPMorgan Chase & Co. strategists, that combination signals a weak reception. Last month’s offerings, the first since 2009 to increase in size, priced at yields higher than the market was indicating heading into the sales. The 3- and 10-year auctions are usually spaced out over two days, but when they came on the same day in December, yields also missed higher.

Bull markets don’t often end because demand evaporates. They usually end because the surge in prices encourages supply into the market and that eventually overwhelms demand. There is no shortage of new supply, in fact the USA’s decision to double its deficit is the latest in a long line of issuers who have been locking in low rates. The fact that one of the biggest buyers, the Fed, is now a net seller, should be giving investors pause when thinking about the value represented by bonds at close to 3%.

Autodesk's results

This note from Bloomberg research may be of interest to subscribers. Here is a section:

Autodesk continues to show steady progress in shifting to a subscription model, which has boosted its recurring sales. Subscriber additions continued to be aided by its discounting and other promotions for converting legacy license users to subscription offerings. The company has bundled its products to boost annual recurring revenue (ARR) and average revenue per subscriber (ARPS). While upsell of subscription products to its maintenance subscribers is aiding sales momentum, new cloud products are unlikely to be a growth driver in the near term.

Subscription business models have been growing in popularity among technology companies since Adobe first explored the concept about five years ago. Historically technology has been a highly cyclical business with each new iteration of the product or software resulting in a surge in sales which subsequently led to declines as sales growth tapered off while support costs rose. The cycle would be repeated with each new product offering and this also put a lot of pressure on companies to come up with a new iteration that was measurably better than the last to justify the additional outlay.

Naspers CEO Exploring Amsterdam IPO for Some Units, FD Says

This article by Wout Vergauwen and Loni Prinsloo for Bloomberg may be of interest to subscribers. Here is a section:

Van Dijk sees investment in e-commerce businesses as helping to reduce a valuation gap with Naspers’s stake in Chinese Internet giant Tencent Holdings Ltd., which is worth more than the company as a whole. E-commerce units, which include online food delivery in India and educational software in the U.S., have the highest potential for an initial public offering, Het Financieele Dagblad cited the CEO as saying. He didn’t set a timeline.

If Naspers decides to list its ecommerce ventures in Amsterdam the question of whether that will include its 30% stake in Tencent is going to have a major influence on the market since it almost certainly represent a powerful new high growth addition to the Euro STOXX 50.

Walmart Tumbles After Slowing Online Growth Jolts Investors

This article by Matthew Boyle for Bloomberg may be of interest to subscribers. Here is a section:

At the same time, Walmart Chief Executive Officer Doug McMillon is trying to convert the company’s brick-and-mortar shoppers into online customers, who spend almost twice as much overall and seek out higher-priced items.

At Walmart’s e-commerce unit, sales rose 23 percent last quarter. That’s less than half the pace of previous periods. The Bentonville, Arkansas-based company had been getting a tailwind from its acquisition of Jet.com, an online upstart that it bought in 2016. Still, the company maintained its full-year forecast for online sales growth of about 40 percent.

The company needs to widen its e-commerce base, especially among younger and professional demographics, said Neil Saunders, managing director of research firm GlobalData Retail.

Wal-Mart is spending a lot of money on its ecommerce platform but the cold reality is that its backend is antiquated compared to that offered by Amazon, eBay or Etsy. Maybe it is focusing on selling its own products over those of third party sellers but if that is the case one has to question why it has been marketing to Amazon sellers so aggressively.

How Low Will Retail Go? Look at the Railroad

This article by Stephen Mihm for Bloomberg may be of interest to subscribers

And that is the likely fate of conventional retail. Like the railroad, there’s an extraordinarily surfeit of retail space built with little consideration of what the market will actually sustain; recent declines in the retail revenue per square foot in brick-and-mortar stores suggests that things are getting worse, fast. And like the railroad, there’s a new way of doing business on the block, except that instead of changing how we move people and goods, online retailing promises a new way of delivering them to the end consumer.

If the per capita retail footprint declined as much as the railroads did, it would fall all the way down to 2.82 square feet per capita. That’s a lot of empty malls and defunct big box stores, but retail won’t disappear any more than the railroads have gone extinct.

In fact, in 2014, the inflation-adjusted revenue that railroads earn per mile of track is 2.7 times what it was a century ago. More startling still, the so-called “ton miles” of freight carried on the nation’s railroads (a ton mile is one ton of freight carried one mile) has tripled since 1960, even as the total size of the operational railroad system has declined dramatically.

That points to the likely future of conventional retail: a drastic reduction in the per capita footprint, with the remaining stores capable of earning far more money per square foot. It’s not the brightest of futures. But it’s also not the end of the world.

Near where I live in Los Angeles, a large mall is close to shutting since it’s primary tenants, Macys and Nordstrom, have decamped to the newly refurbished Westfield mall in Century City near Beverly Hills. The two malls are about a mile apart but until a couple of years ago Macys seems to have been comfortable with the idea of having two large stores within close proximity of one another. In between the two malls the only businesses that have survived are universally service oriented. So, what is going to be done with all the empty commercial space sitting on valuable pieces of real estate?

The Robots Are Coming for Garment Workers. That's Good for the U.S., Bad for Poor Countries

This article by Jon Emont for the Wall Street Journal covers a theme I have been highlighting for years. Here is a section:

The apparel industry—unlike cars or electronics—seemed protected. Fabrics are notoriously difficult to work with, meaning nimble human hands are often better than machines. There was plenty of labor in Bangladesh, Cambodia and China, reducing the urgency to automate.

But labor costs have been climbing, even in developing countries. And technology is becoming so advanced that machines can increasingly handle difficult tasks such as manipulating pliable fabrics, stitching pockets and attaching belt loops to pants.

All that is upending the economics of the apparel industry, which long served as the first rung on the economic ladder for poorer countries, especially in Asia. A 2016 International Labor Organization study predicted some Asian nations could lose more than 80% of their garment, textile and apparel manufacturing jobs as automation spreads.

“I worry about developing countries—they are in the bull's-eye of this automation revolution” as robots master repetitive tasks once dominated by poor nations, said Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy. Most jobs of the future require significant skills training—and that is where more-developed nations thrive, he said.

The textile sector has for generations represented the first rung on the road to economic development. That is probably still the case since there are still plenty of low cost, high population areas, not least in Africa.

However, while in previous generations a country could rely on the textile sector for job growth for decades, technological innovation now demands much faster progression up the value chain as well as the fostering of a domestic market.

Cisco Surges to Highest in 17 Years on Bullish Earnings Outlook

This article by Ian King for Bloomberg may be of interest to subscribers. Here is a section:

Cisco is one of the richest companies in the technology industry. It has more than $70 billion in cash, most of which was earned overseas and parked there. The company will now bring back some of that money and devote an additional $25 billion to buying back stock. Cisco took a charge of $11.1 billion related to new tax laws, leading to a net loss of $1.78 a share in the second quarter. Excluding some items, it reported a profit of 63 cents a share, beating analysts’ estimates for 59 cents.

Sales rose for the first time in eight quarters to $11.9 billion in the three months ended Jan. 27, also coming in ahead of estimates.

Robbins is seeking to restore the growth that once made Cisco the biggest company in technology. It’s a challenge amid a fundamental change in the networking industry that’s forcing Cisco to acquire new skills and adapt its business model. The technology of networks is increasingly shifting to software control and security of data flow and away from fixed-purpose hardware. At the same time, some of the largest buyers of gear -- owners of data centers such as Amazon.com Inc.’s Amazon Web Services and Microsoft Corp.’s Azure -- are increasingly designing their own hardware forcing Cisco to come up with new, cheaper and more flexible products that might interest them.

Silicon Valley's Tax-Avoiding, Job Killing, Soul-Sucking Machine

Thanks to a subscriber for this article by Scott Galloway for Esquire which may be of interest. Here is a section:

content machine, dominating the majority of phones worldwide. Now “what’s on your mind?”

Four hundred hours of video are uploaded to YouTube every minute, which means that Google has more video content than any other entity on earth. It also controls the operating system on two billion Android devices. But AT&T needs to divest Adult Swim?

Perhaps Trump is right that the merger of AT&T and Time Warner is unreasonable, but if so, then we should have broken up the Four ten years ago. Each of the Four, after all, wields a harmful monopolistic power that leverages market dominance to restrain trade. But where is the Department of Justice? Where are the furious Trump tweets? Convinced that the guys on the other side of the door are Christlike innovators, come to save humanity with technology, we’ve allowed our government to fall asleep at the wheel.

Capitalism trends towards concentration as the large and strong consume the weak. Despite claims to the contrary, it in the interests of company executives to ensure the company they work for comes out on top by whatever means necessary. It is rare in the extreme that fines levied, after the fact, match the benefit from ensuring a competitor’s demise. Therefore, large companies, that dominate their respective niches, tend to persist for as long as they retain the hunger to dominate.

Email of the day on selling down to the sleep level

Your continuing analyses are invaluable. A week ago, on 6 Feb 2018 when the Dow had its 1175-point fall, the report hit the news headlines in Western Australia at 5.30 am. My wife woke me to say, “Sorry for waking you but I’ve just heard on the news that the Dow Index has collapsed by more than 1,100 points; I thought that you may want to do something”. I calmly advised her that I had already sold all our US shares. I pulled the blanket over my head and went back to sleep. That peace of mind came from implementing your guidance.

Today I read an optimistic forecast which may be worth sharing with readers. The analysis said:

“While those all-time-low fixed income yields are rising thanks to forthcoming inflation, S&P 500 earnings are also rising, thanks to robust economic strength and tax reform. That means valuations no longer need to be sky-high to support higher stock prices.

The analysis then referred to the “Equity Risk Premium (ERP)”and argues that because equity earnings are expected to rise, the premium will rise more rapidly than the 10-year bond yield and support higher prices.

Thank you for this heart-warming account and interesting article which lays out what I consider to be the most common argument on Wall Street for why stocks should continue higher. This is based on outsized earnings growth projections and the assumption 3% is an important floor for Treasury prices.

Tesla doesn’t make money so every source of fresh capital is important to the company. Having tapped the bond and equity markets the company began taking deposits for its Model 3 which the company counts as revenue. One might rightfully question the accounting integrity of that decision since these are deposits based on the assumption a car will be delivered.

Cancer 'vaccine' eliminates tumors in mice

This article from Stanford Medicine may be of interest to subscribers. Here is a section:

Injecting minute amounts of two immune-stimulating agents directly into solid tumors in mice can eliminate all traces of cancer in the animals, including distant, untreated metastases, according to a study by researchers at the Stanford University School of Medicine.

The approach works for many different types of cancers, including those that arise spontaneously, the study found.

The researchers believe the local application of very small amounts of the agents could serve as a rapid and relatively inexpensive cancer therapy that is unlikely to cause the adverse side effects often seen with bodywide immune stimulation.

“When we use these two agents together, we see the elimination of tumors all over the body,” said Ronald Levy, MD, professor of oncology. “This approach bypasses the need to identify tumor-specific immune targets and doesn’t require wholesale activation of the immune system or customization of a patient’s immune cells.”

One agent is currently already approved for use in humans; the other has been tested for human use in several unrelated clinical trials. A clinical trial was launched in January to test the effect of the treatment in patients with lymphoma.

Immuno-oncology is a rapidly evolving field in its own right but has significant tailwinds behind in the form of the falling cost of genetic sequencing and the gene editing using CRISPR-Cas9. Together with decades of progressive research in the oncology field the prospect of a cure for cancers of many different hues is within reach.

Email of the day on volatility and bitcoin

If one was long XIV, you just could be screwed...

"Investors" who buy long vol ETN's should be really concerned - VXX completely failed to track the VIX today, going up only 33% as VIX slammed up 115.5%. Now of course they'll say that they squared up after hours, but still achieved maybe 60% or roughly a 50% tracking error. As you and I have discussed multiple times, the vol ETNs were just growing nightmare seeds waiting to be exploded upon the market. Now we may get to see just how good the counterparties are for those ETN's (as we whistle past the graveyard). The press continues to mistake the vol ETN's for ETF's - a serious mistake in thinking.

My rule: never buy a loan based on shaky (or no) collateral that represents a derivative of a derivative of a derivative of a set of derivatives.

I was and am long vol through simple puts and a straddle on SPY. Tomorrow my cash management rule will likely require rolling the puts down. Of course, it is another day, and we could see a super-fast reversal as always...

Tonight, Bitcoin is slipping away towards 6,000. A distant cousin of mine, a late-50's woman whose life was spent (honorably) raising children while her hubby worked as a blue-collar guy in the nearby nuclear weapons manufacturing facility, called me to ask if she should invest in bitcoin. I tried my best to explain to her that she should only invest money she could afford to lose, and should only gamble away money she could afford to burn. I also explained that bitcoin was not a currency, but rather a commodity, and had no intrinsic value whatsoever. 45 minutes of pushback from her was my limit. I'm sure she is busily trying to figure out how to put that 8-year-old PC in her closet together so she can trade those golden promises of untold wealth.

Thank you for the insight into your options trading which I’m sure will be of interest to the Collective. I can identify with the story of the person whose money is burning a hold their pocket to invest in Bitcoin. My mother is in hospital at the moment after a scare with pneumonia but is happily well on the road to recovery although it appears she is going to need a heart valve replacement. On the phone this morning she recounted how due to overcrowding at her local hospital she spent two days in the male ward where a fortysomething year old had been admitted following a stroke. However, all he wanted to do was proselytise about the wonders of bitcoin and nothing more than to convert everyone he met into a speculator.

How have traditional safe haven assets been performing?

Three points agitated investors on the 30th and contributed the largest decline on the stock market seen in months. Amazon, JPMorgan and Berkshire Hathaway announcing a plan to reduce healthcare costs for their employees hit the healthcare sector, there were fears that President Trump’s State of the Union address would focus on trade, the Dollar and China but the speech was noticeably light on these topics. Meanwhile any investment manager looking to sustain a 60/40 split in bonds to equities had until today’s close rebalance some of their overweight equities into bonds.

Email of the day on longevity

Thank you for bringing this instrument to my attention. The narrative around longevity and quality of life is being transformed as society ages. Everyone wants to live a long life and the medical profession has become highly successful at keeping us alive. However, with the rising prevalence of Alzheimer’s, chronic pain and the associated loss of quality of life, the narrative is changing to support a more vital and active life rather than simply length of years.

Axolotl genome sequenced, revealing regeneration genes

This article by Michael Irving for Gizmag may be of interest to subscribers. Here is a section:

To help potentially unlock the axolotl's regeneration secrets, an international team of scientists has now mapped the animal's genome. And that was no easy feat: The axolotl genome contains a staggering 32 billion base pairs of DNA, meaning it's more than 10 times bigger than that of humans and is currently the largest genome ever sequenced.

This enormous undertaking was completed using the PacBio platform, which can sequence more regions of the genome in each individual "read". Since there's far too much information in the entire genome, these tools divide the work up into smaller chunks at a time, called reads. Even though PacBio can perform longer reads than other systems, it still took more than 72 million reads, and other software can then stitch together the full genome from all these pieces.

On analysis of the genome, the researchers found several genes unique to axolotls and other amphibians that are expressed during regeneration. Interestingly, a gene called PAX3, which was previously considered vital to the development of an organism, was completely missing from the genome. Instead, the related gene PAX7 appears to have taken over those critical functions.

The first promise of biotechnology evolved during the boom of the 1990s with enthusiasm for innovation running well ahead of the time it takes to bring therapies to commercialization. In the 18 years since then, the pace of innovation in biotechnology has been on an exponential growth trajectory with the result that gene therapies are now at the point of being introduced to patients. The first genetically engineered therapy was permissioned by the FDA last year and it is likely to be the first of many.

The argument about whether electric cars are less polluting on an all-in basis is likely to continue to rage, with the crux of the argument focusing on what kind of generating capacity is used to produce electricity in any given country. However, the fact electric cars contribute to a country being less dependent on imported oil represents a powerful argument for adoption.

China, Unhampered by Rules, Races Ahead in Gene-Editing Trials

This article by Preetika Rana, Amy Dockser Marcus and Wenxin Fan for the Wall Street Journal may be of interest to subscribers. Here is a section:

In a quirk of the globalized technology arena, Dr. Wu can forge ahead with the tool because he faces few regulatory hurdles to testing it on humans. His hospital’s review board took just an afternoon to sign off on his trial. He didn’t need national regulators’ approval and has few reporting requirements.

Dr. Wu’s team at Hangzhou Cancer Hospital has been drawing blood from esophageal-cancer patients, shipping it by high-speed rail to a lab that modifies disease-fighting cells using Crispr-Cas9 by deleting a gene that interferes with the immune system’s ability to fight cancer. His team then infuses the cells back into the patients, hoping the reprogrammed DNA will destroy the disease.

In contrast, what’s expected to be the first human Crispr trial outside China has yet to begin. The University of Pennsylvania has spent nearly two years addressing federal and other requirements, including numerous safety checks designed to minimize risks to patients. While Penn hasn’t received final federal clearance to proceed, “we hope to get clearance soon,” a Penn spokeswoman said.

Let’s for a moment consider that different countries have different ethical priorities. After all, we come from highly varied cultural and religious backgrounds. However, the cold reality is China is the wild west of biomedical experimentation. That virtually ensures there will be a human cost. These might be brushed off, by claiming the patient would have died anyway, but there is no doubt the standard of care and Hippocratic oath do not mean the same in China as it does elsewhere.

Intel Unveils 'Breakthrough' Quantum Computer

This article by Joel Hruska for Extreme Tech may be of interest to subscribers. Here is a section:

The new system is codenamed Tangle Lake, a reference to an Alaskan lake chain and the tangled state of the electrons themselves. Quantum computers are extremely different from standard (classical) computers, and can tackle problems modern classical machines can’t handle. The reason increasing the number of qubits in the system is important is because it also allows for a significant amount of additional work to be done and for more complex problems to be considered. And according to Intel, the gap between where we are today and where the company thinks we need to be for commercialization of quantum computing is enormous.

“In the quest to deliver a commercially viable quantum computing system, it’s anyone’s game,” said Mike Mayberry, corporate vice president and managing director of Intel Labs. “We expect it will be five to seven years before the industry gets to tackling engineering-scale problems, and it will likely require 1 million or more qubits to achieve commercial relevance.”

Intel is also investigating another type of qubit, spin qubits, to see if they can be implemented in silicon. Spin qubits are much smaller and can potentially be implemented in CMOS and Intel has invented a spin qubit fabrication flow on “300mm process technology.” This is oddly phrased, but seems to indicate Intel is building these chips on its 300mm wafers as opposed to some new process node.

The fallout from the exposure of vulnerabilities in the vast majority of chips currently in computers all over the world is going to necessitate a rethink of how to deliver the best possible processing speeds at an attractive price. For too long the semiconductor business has paid scant attention to the threat of hacking but with the increasing digitization of the global economy it is an issue that can no longer be simply ignored.

General Motors recently announced plans to roll out a line of 20 all-electric vehicles over the next six years. Ambitious plans like these from traditional automakers have raised fears about more competition ahead for Elon Musk's company, but Jonas said Tesla's existing infrastructure "footprint" will be a "key differentiator" over the coming years, further boosting the stock.

"Infrastructure (of lack thereof) is the 'elephant in the room' of the EV revolution," wrote Jonas in a note late Monday. "Compared to other OEMs (Original Equipment Manufacturer), Tesla has made the biggest proprietary investment in superchargers and destination chargers globally. In most communities, we believe this infrastructure is larger than it needs to be in preparation for the expansion of the serviceable and charge-thirsty fleet. Other OEMs will closely watch how consumers react to this infrastructure."

Hardware is hard. GoPro is in search of a savior and Fitbit is languishing. Both rely on OEM manufacturers to produce their products while Tesla has broken the mold for new hardware companies by building manufacturing capacity from scratch. It helps that the company is building big ticket items like cars instead of trinkets but still manufacturing is fraught with complexity.

Intel, Microsoft Deal With Widespread Computer-Chip Weakness

This article by Ian King for Bloomberg may be of interest to subscribers. Here is a section:

News of the weakness, found last year and reported Tuesday by The Register technology blog, weighed on shares of Intel, the biggest semiconductor maker, while boosting rivals including Advanced Micro Devices Inc. Intel’s silence for most of Wednesday added to investors’ unease.

Late in the day, Intel, Microsoft, Google and other tech bellwethers issued statements aimed at reassuring customers and shareholders. Intel said its chips weren’t the only ones affected and predicted no material effect on its business, while Microsoft, the largest software maker, said it released a security update to protect users of devices running Intel and other chips. Google, which said the issue affects Intel, AMD and ARM Holdings Plc chips, noted that it updated most of its systems and products with protections from attack. Amazon.com Inc., whose AWS is No. 1 in cloud computing, said most of its affected servers have already been secured.

Every other month we have news of just how porous the devices we rely on for just about everything are to exposing our personal information. This is a significant challenge for the IT sector in all its forms. The argument for increasing reliance on the internet, cloud and Internet of Everything is completely dependent on security, lest the devices we employ be used against us. This represents a cost which both in terms of speed and convenience but potentially also money for consumers and represents a challenge for corporations to keep under control.

Supersonic. Hypersonic Is the U.S. Military's New Speed

This article by Justin Bachman for Bloomberg may be of interest to subscribers. Here is a section:

Boeing Co.’s XS-1 (Experimental Spaceplane), which the company dubs “Phantom Express,” got a green light this week by the Defense Advanced Research Projects Agency, or Darpa. The XS-1 is designed to quickly lift satellites as heavy as 3,000 pounds into orbit for $5 million or less, launching from the ground, deploying a small upper-stage module, and then landing like a traditional airplane—the key to reuse and lower operating expense. Darpa also has a separate program aimed at launching 100-pound satellites for less than $1 million per launch, using conventional aircraft.

“The XS-1 would be neither a traditional airplane nor a conventional launch vehicle but rather a combination of the two, with the goal of lowering launch costs by a factor of ten and replacing today’s frustratingly long wait time with launch on demand,” Jess Spoonable, a Darpa program manager, said in a May 24 statement.

It has long occurred to me that the stealth bomber had its maiden flight in the late 1980s, but only entered service years later. Then I think about how different the original iPhone is from what I carry around.

Email of the day on investing in emerging technology themes for a UK investor:

New Year greetings to you and David and all FT members. About a year ago on the site there was a presentation on the new technological revolution, given by Mr. David Brown. It covered AI, robotics, cyber security, biotechnology, healthcare and the like. It was all wonderful stuff, but how do I deal in the shares and ETF's mentioned? I'm with Barclays - an ISA and spread betting account - and they have little coverage of these areas.

Happy New Year to you and to everyone in the Collective of subscribers Thanks for this question which is sure to be of interest to other subscribers. This article from the Telegraph dated 2014 explains how to invest in overseas shares through your ISA. Here is a section:

A crucial question: can you put your overseas stocks in your Isa or pension? HM Revenue & Customs' rules forbid foreign currency in an Isa, so you have to use the costlier, sterling conversion approach to buy foreign shares in your Isa, converting back to pounds when you sell. The Isa accounts operated by Hargreaves and TD allow foreign stocks to be held in this way.

Disappointingly, Barclays' systems do not allow any overseas stocks to be held within an Isa.

With self-invested pensions, or Sipps, you can hold and trade in foreign currencies. So you can have part of your Sipp denominated in dollars if your broker (such as TD) offers the facility. Hargreaves Lansdown doesn't offer the service and Barclays, again poor in this respect, doesn't allow any overseas stocks within its pension accounts.

Bitcoin Tumbles More than 25% as Sharks "Beginning to Circle"

This article by Samuel Potter and Eddie van der Walt for Bloomberg may be of interest to subscribers. Here is a section:

Bitcoin dropped to as low as $10,776. It last traded below $10, 000 on Dec. 1, when the U.S. Commodity Futures Trading Commission agreed to allow trading in bitcoin futures. For the week, the decline is as much as 39 percent. That follows gains of 13 percent, 44 percent and 32 percent in the prior three weeks.

The losses represent a major test for the cryptocurrency industry and the blockchain technology that underpins it, which have rapidly entered the mainstream in recent weeks. Bears cast doubt on the value of the virtual assets, with UBS Group AG this week calling bitcoin the “biggest speculative bubble in history.” Bulls argue the technology is a game changer for the world of investment and finance. Both will be closely watching the outcome of the current selloff.

If the history of bubbles tells us anything it is that the pace of innovation occurs largely independently of the price action. Crowds tend to overshoot in both directions and the merits or otherwise of blockchain technology, as a way of streamlining transactions and verifying contracts, are separate from the vicissitudes of token price action.

The most ambitious forecasts for technological innovation which tend to focus on the internet of things, autonomous vehicles, drone deliveries, smart speakers that act more like butlers/lifestyle managers than search engines, smart clothing, smart glasses, smart metering, not to mention artificial intelligence, big data as a service and even intelligent prosthetics all depend heavily on broadband access.

Email of the day on why bitcoin can only go up

I think it's easy to lose sight that Bitcoin was never intended as an investment vehicle but rather a digital currency. Hard money advocates should appreciate the cap on the total number. Certainly, until there is a much wider acceptance as a currency and more people own it, there will continue to be extremely high volatility. However, since there is a limit on the total number of bitcoin and more people will want to own some, isn't it natural for it to rise in price? The pace has been astonishing but maybe we are really only in the early stages. By nature, it must go higher IF it is to be an alternative currency whose supply can't be increased (like fiat currencies are)

Thank you for this email which I suspect will be of interest to many subscribers. Once upon a time a unicorn was a fabled animal with quasi-magical properties, today it is a fast-growing company with valuation of $1 billion. Friends used to be people you shared time and experience with, today they are people you show photos of yourself to. A snowflake used to be something that fell from the sky, now it is a pejorative term for sensitive people. A trigger used to be associated with guns, now it is an excuse for histrionics. Miners used to be hardy souls who engaged in back breaking work to extract ore from the earth, today they dust-off and fix computers solving puzzles. There was a time a currency was something you could rely on as a medium of exchange and my how that definition has been stretched.

This is how much copper, nickel, cobalt an electric vehicle world needs

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

The London-based research company modelled metal requirements across the supply chain – from generation and grid infrastructure through to storage, charging and vehicles – based on relatively modest penetration of EVs in the total global vehicle market out to 2030.

According to the study as early as 2020, when EVs would still make up only 2% of new vehicle sales, related metal demand already becomes significant, requiring an additional 390,000 tonnes of copper, 85,000 tonnes of nickel and 24,000 tonnes of cobalt.

Based on an EV market share of less than 32% in 2030, forecast metal requirements are roughly 4.1m tonnes of additional copper (18% of 2016 supply). The move away from gasoline and diesel-powered vehicles would need 56% more nickel production or 1.1m tonnes compared to 2016 and 314,000 tonnes of cobalt, a fourfold increase from 2016 supply.

Miners went through a decade of investing in supply and then prices collapsed. They were forced to cancel exploration and to focus on free cash flow. Appetite for investing in additional new supply is low but there are obvious demand drivers coming from the electric car market.

Electric Car Range May Soon Triple, Thanks to New Research

This article from Futurism may be of interest to subscribers. Here is a section:

The paper, published in the journal Joule, details how scientists added a compound made up of phosphorus and sulfur elements to the electrolyte liquid, which carries charge within batteries. The team claims that this compound reacts with the lithium metal electrode in a battery to “spontaneously coat it with an extremely thin protective layer.” This protection, supposedly, allows for the use of lithium metal electrodes within batteries, which adds greater storage capacity, without risks or degradation. This improvement could triple the range of these nascent vehicles.

The prize of achieving greater efficiency for batteries can’t be overstated so there is a flood of capital pouring into R&D. At the same time, large factories are being built to achieve economies of scale with current technology. This two-pronged approach is likely to deliver both quantity and quality to the electric car sector over the coming decade. The additional factor of more stringent environment standards for emissions is a third important consideration for major automotive companies.

Bitcoin's Future Is All Mapped Out

This article by Marcus Ashworth for Bloomberg may be of interest to subscribers. Here is a section:

And, in fairness, there's a game attempt to stop this being completely off-the-scale Wild West stuff. It's a cash-settled futures contract in U.S. dollars, with no actual delivery of Bitcoin required. The exchange will impose a minimum initial margin -- the deposit required to trade a specified amount of futures contracts -- of 35 percent. That's seven times more than for trading oil or mini-S&P equity futures. There will be a twice-daily requirement to make sure the 35 percent buffer is intact, given Bitcoin's constant swings. Clearing members can impose a higher limit if they want. Two-minute trading breaks will kick in if the daily price moves 7 percent away from the previous day's settlement price, then again at 13 percent and a hard limit at 20 percent when all trading will cease unless trading can restart within that band. There are no stated plans to offer options on the futures, until the contract is fully established. That would be too much rocket fuel.

Anticipation about the wall of money that could hit the bitcoin market with the introduction of futures is propelling speculation in the original cryptocurrency. This is an acceleration which is close to the ferocity of the move in 2013 when the price first managed to reach $1000 despite the fact it is multiples that level today.

Elon Musk's Boring Company shares potential map of LA tunnel network

This article by Nick Lavars for Newatlas many be of interest to subscribers. Here is a section:

These tunnels would essentially function as fast freeways, where vehicles and passenger pods latch onto electric skates and get shuttled along at up to 150 mph (241 km/h). There would on and off ramps every mile or so, each with a dedicated side tunnel to avoid logjams. These tunnels could also form part of a Hyperloop system over larger distances between cities.

While all of that remains a ways off, the company is making progress on its proof-of-concept tunnel. Photos shared by Musk in October showed a fully concreted tunnel complete with tracks and cables that he said at the time measured 500 ft (152.4 m) and within three of four months would stretch to around 2 mi (3.2 km).

I have to admit that my first reaction to the Boring Company’s announcement of tunnels for the LA area was something to akin “Has anyone told Elon Musk that Los Angeles is prone to earthquakes?” After all the idea of tunnels is all well and good until they turn into coffins.

The rejoinder today would be that tunnels are immune to wildfires. Less that 8 miles from where I live the mountain between here and the Valley is on fire, which makes me glad I work from home and on flat ground. A lot of the people who pay city taxes in Los Angeles live in the areas currently burning, suggesting the Boring Company may get a leg up from the fires regardless of the safety concerns inherent in its plan.

Bitcoin: UK and EU plan crackdown amid crime and tax evasion fears

The UK and other EU governments are planning a crackdown on bitcoin amid growing concerns that the digital currency is being used for money laundering and tax evasion.

The Treasury plans to regulate bitcoin and other cryptocurrencies to bring them in line with anti-money laundering and counter-terrorism financial legislation. Traders will be forced to disclose their identities, ending the anonymity that has made the currency attractive for drug dealing and other illegal activities.

Under the EU-wide plan, online platforms where bitcoins are traded will be required to carry out due diligence on customers and report suspicious transactions. The UK government is negotiating amendments to the anti-money-laundering directive to ensure firms’ activities are overseen by national authorities.

The Treasury said: “We are working to address concerns about the use of cryptocurrencies by negotiating to bring virtual currency exchange platforms and some wallet providers within anti-money laundering and counter-terrorist financing regulation.”

U.S. regulator says it will allow CME Group, CBOE to list bitcoin futures

Thanks to a subscriber for this article from Reuters which may be of interest. Here is a section:

The announcement by the Commodity Futures Trading Commission (CFTC) paves the way for CME and CBOE to become the first traditional U.S. regulated exchanges to launch trading in bitcoin-related financial contracts, in a watershed moment for the cryptocurrency that should lead to greater regulatory scrutiny.

Trading in the CME and CBOE bitcoin futures contracts, which will be priced against and settled in the cash bitcoin market, should begin by year end, a CFTC official said.

Bitcoin soared above $11,000 for the first time this week, up 10-fold year-to-date and prompting multiple warnings of a bubble.

To guard against volatility, CME and CBOE will put in place stricter than usual risk-management safeguards, including initial margin requirements of between 35 percent and 40 percent.

The exchanges have also agreed to enter into information sharing agreements and to send the CFTC data on the settlement process so the regulator can conduct its own surveillance.

When I have traded bitcoin via spread-bets over the last year the minimum margin requirement has been somewhere in the region of 20% and increases to over 30% depending on the size of the position. For futures contracts where the positions are generally larger, the margin requirement of 35-40% is in line with bitcoin’s volatility since 30% drawdowns are not at all uncommon. What that also means is that the ROI of trading bitcoin is quite high, in other words the quantity required in the pay to play environment is quite high relative to other assets.

Inside Adidas' Robot-Powered, On-Demand Sneaker Factory

This article by for Wired.com may be of interest to subscribers. Here is as section:

Some economists are bullish on ideas like Speedfactory and see it as the start of a much larger trend. “We are finally escaping from the manufacturing trap that we’ve been in for the last 20 years,” says Michael Mandel, chief economic strategist at the Progressive Policy Institute in Washington, DC, referring to the mass offshoring of production to Asia.

Improvements in automation can now finally substitute for cheap foreign labor, which will naturally push factories closer to where the consumers are. As manufacturing shifts from offshore mass production to customized, local fabrication, new jobs will open up for human workers, some of which have yet to reveal themselves. “We used to have distribution built around manufacturing,” Mandel says, referencing the centrality of offshore factories, “and now I think that manufacturing is going to be built around distribution.”

The growing role of automation in the garment and shoe sector has been a topic I’ve written about extensively over the last few years. Textiles remain one of the most labour intensive of all industries and has also played a pivotal role as a first step on the road to development for many developing countries.

Bitcoin Surges Past $11,000 as Bubble Warnings Can't Cool Market

This article by Julie Verhage and Eric Lam for Bloomberg may be of interest to subscribers. Here is a section:

Bitcoin is on a tear in 2017, a 10-fold surge that took off even more after CME Chief Executive Officer Terrence Duffy announced in October that the company would offer futures trading by the end of the year. The move is considered key to Wall Street’s broader embrace of the crypotcurrency, likely enabling increased speculation and -- perhaps some day -- products such as exchange-traded funds.

Still, bitcoin’s jump has been met with caution in some circles, and outright dismissal in others. Vanguard Group Inc. founder John Bogle advised investors on Tuesday to avoid the virtual currency “like the plague,” while JPMorgan Chase & Co. CEO Jamie Dimon has called it an asset bubble and a fraud.

Under U.S. law, exchanges like CME, which profit from increased trading volumes, can approve new futures contracts themselves. The process, which is used in most cases, is known as self-certification and involves sending a written confirmation to the CFTC that the contract complies with relevant rules. Often, agency officials will engage in a back-and-forth with a company.

China racing for AI military edge over U.S.: report

This article by Phil Stewart for Bloomberg may be of interest to subscribers. Here is a section:

The competition was one of many examples cited in a report by a U.S.-based think tank about how China’s military might leverage its country’s rapid advances in artificial intelligence to modernize its armed forces and, potentially, seek advantages against the United States.

“China is no longer in a position of technological inferiority relative to the United States but rather has become a true peer (competitor) that may have the capability to overtake the United States in AI,” said the report, written by Elsa Kania at the Center for a New American Security (CNAS) and due to be released on Tuesday.

Alphabet Inc’s Executive Chairman Eric Schmidt, who heads a Pentagon advisory board, delivered a similar warning about China’s potential at a recent gathering in Washington.

Schmidt noted that China’s national plan for the future of artificial intelligence, announced in July, calls for catching up to the United States in the coming years and eventually becoming the world’s primary AI innovation center.

Developing hardware is technically difficult and requires highly specialized machinery which a relatively small number of countries control the manufacture of. That has precluded China from developing a domestic semiconductor business despite the fact it is a major assembler of computing products. Software is not subject to those kinds of limitations.

Bitcoin Guns for $10,000 as Cryptocurrency Mania Defies Skeptics

This article by Julie Verhage, Eric Lam and Todd White for Bloomberg may be of interest to subscribers. Here is a section:

Bitcoin blew past $9,700 just a week after topping $8,000 and approached its closest ever to five figures, gaining mainstream market attention as it defies bubble warnings.

The biggest price jump since August consolidated during Japanese trading hours and vaulted the largest cryptocurrency’s value in circulation above the market caps of all but about 30 of the S&P 500 index members. The increase also buoyed its 10-day volatility to more than 15 times the level of the euro-dollar, the most traded currency pair.

What I find interesting about the bitcoin market is how fervent the bulls are and how skeptical the bears are. It represents a perfect example of the sharp discrimination evident in a crowd as the polarization in performance between the winners and losers grows progressively wider.

Email of the day on the digital economy:

Another dynamite audio last weekend - much appreciated, and thank you.

I came across this report from Huawei and Oxford Economics the other day. I'm still reading but it really ups the argument about the effect of digital technology using what it calls the spill-over effect within and across industries.

Some of the report’s key findings are:

The true size of the 2016 digital economy is US $11.5 trillion globally, or 15.5% of global GDP. This is roughly 3 times larger than traditional measurements. The base digital assets comprise 1/3 or $3.8 trillion, while digital spillover effects account for the remaining 2/3 or $7.5 trillion

The digital economy is 18.4% of GDP in advanced economies, ranging in size from 35% to 10%. The US has the largest digital economy at 35% of GDP.

The global digital economy has almost doubled between 2000 and 2016, growing 2.5 times faster than global GDP over this period. China’s share has tripled from 4% of GDP in 2000 to 13% in 2016.

Over the past three decades, every dollar invested in digital technologies added $20 to GDP on average, 6.7 times higher than non-digital investments which added $3 for every dollar invested.

Assuming current growth rates of digital investments over the next 10 years, the report estimates that by 2025 the digital economy will be US $23 trillion globally, or 24.3% of global GDP, up from 15.5% in 2016.

If you download, I found the graph on 9.17, Fig 3 particularly interesting and unexpected.

Thank you for your kind words and I’m delighted you are enjoying the big picture long-term videos. If the viewer numbers on Vimeo are anything to go by they are the most popular feature on the site apart from the Chart Library.

This is a very welcome contribution to the debate on how much the digital economy contributes to productivity growth. Some are still arguing that the productivity gains from the internet peaked more than a decade ago and use that to explain why growth has been less than impressive since. However, as the complementary evolution of artificial intelligence, automation, cloud computing, social media, 4G connectivity and Internet of Things advance they all contribute to productivity gains when viewed from a wider digitisation theme.

If you invested $1,000 in stocks like Amazon and Netflix 10 years ago, here's what you'd have now

But there are cautionary tales to be seen in the chart, too, since any individual stock can either over- or under-perform. That's why so many experts suggest that, to get started in the stock market, you consider index funds, which hold every stock in an index such as the S&P 500, including big-name companies such as Apple, Microsoft and Google, and offer low turnover rates, so the attendant fees and tax bills tend to be low as well. Warren Buffett, Mark Cuban and Tony Robbins all agree index funds are a safe bet, especially for new investors, since they fluctuate with the market, stay pretty constant and eliminate the risk of picking individual stocks.

The subtext of this statement, quoting some of the most venerable investors in the business, is that owning Index trackers is risk free. I’m sure that is not what the likes of Warren Buffett and Mark Cuban mean but both are on the record as saying that ordinary investors have no hope of achieved the same results they have. The article implies you need to own the Index because you have no hope of picking the big winners.

Tech giants' powerful user networks, large cash piles and access to consumer data have led many investors to expect the big will only get bigger.

"You need critical mass to support continuing innovation," said Christopher Dyer, director of global equity at Eaton Vance. While there are exceptions, "China and the U.S. would be natural destinations for incremental dollar investment within tech," he said.

The return to outperformance of emerging markets has been a major topic of conversation for investors this year but it is worth highlighting that Tencent Holdings, Alibaba, Samsung and Taiwan Semiconductor represent 17% of the MSCI Emerging Markets Index.

One in three Chinese children faces an education apocalypse. An ambitious experiment hopes to save them

This article by Dennis Normile for Sciencemag.com may be of interest to subscribers. Here is a section:

One in three Chinese children faces an education apocalypse. An ambitious experiment hopes to save them – This article by Dennis Normile for Sciencemag.com may be of interest to subscribers. Here is a section:

The result is a widening gap between urban and rural educational achievement in China, Rozelle says. Many urbanites fit the stereotype of "tiger" parents, pushing kids to excel in school. After hours, their schedules are packed with music and English lessons and sessions at cram schools, which prepare them for notoriously competitive university entrance exams. More than 90% of urban students finish high school.

But only one-quarter of China's children grow up in the relatively prosperous cities. Rural moms have high hopes for their children; Rozelle's surveys have found that 75% say they want their newborns to go to college, and 17% hope their child gets a Ph.D. The statistics belie those hopes: Just 24% of China's working population completes high school.

Rozelle believes such numbers bode ill for China's hopes of joining the ranks of high-income countries. Over the past 70 years, he explains, only 15 countries have managed to climb from middle- to high-income status, among them South Korea and Taiwan. In all those success stories, three-quarters or more of the working population had completed high school while the country was still in the middle-income bracket. These workforces "had the skills to support a high-income economy," Rozelle says. In contrast, in the 79 current middle-income countries, only a third or less of the workforce has finished high school. And China is at the bottom of the pack. School dropouts don't have the skills needed to thrive in a high-income economy, Rozelle says. And, worryingly, the factory jobs that now provide a decent living for those with minimal training are moving from China to lower-wage countries.

Rozelle thinks a lack of opportunity isn't the only factor holding back China's rural children. Physically and mentally, they are also at an increasing disadvantage, hampering their performance in school and their prospects in life.

You might remember last year the OECD’s Pisa rankings of schools was released and China featured particularly highly. That is because the data only looked at Beijing, Shanghai, Guangdong and Jiangsu where the best of the country’s education resources are concentrated. As the above article highlights the real story is of a country that still has a long way to go in equipping its population with the tools necessary to succeed in the 21st century.

The Chart Seminar

It is always a pleasure to meet subscribers but doubly so when we get to spend two days together discussing the outlook for psychological makeup of the market, where we are in the big cycles and which sectors are leading and which are showing relative strength. I had three big takeaways from last week’s seminar in London.

As anyone who has attended the seminar will know, I do not have examples but offer delegates the opportunity to dictate the direction of the conversation. That ensures the subject matter is relevant to what they are interested in and also highlights the fact that subject matter is applicable to all markets where an imbalance between supply and demand exists. The second benefit of allowing delegates to pick the subject matter is that it is offers a window into what is popular in markets right now and what might be getting overlooked.

Ubisoft's Microtransaction Revenue Just Beat Digital Sales for the First Time

This article from Extreme Tech may be of interest to subscribers. Here is a section:

Microtransactions have been hotly debated since they began debuting in mobile games almost ten years ago. While they’d been used sporadically in various games for years, the rise of mobile games and their extremely low-to-free pricing made them a functional necessity for developers working in Android or iOS. The AAA PC gaming industry quickly took notice of this, and began offering games with microtransaction options. There’s been a great deal of pushback from the community at various points (Dead Space 3 got hosed for it, as did Bethesda and its horse armor), but microtransactions are clearly here to say. Ubisoft just reported that it took in more money in microtransaction sales than it did in game sales for the first time ever.

Over the past few years, Ubisoft has seen a notable shift in its earnings for various titles, SeekingAlpha reports. Game sales were buoyed this year by South Park: The Fractured But Whole and Assassin’s Creed: Origins, but microtransactions shot up even further, growing 1.83x in 12 months compared to 1.57x for game sales. Ubisoft also got a boost from the Switch, but even with Nintendo’s new platform, microtransactions brought home the bacon.

Once upon a time you bought a computer game and it included everything you would ever need to play that game. I started playing Diablo 2 as a teenager and the game is still available online with access to the Battlenet server, so players can join and play with or against others. It’s still free after more than 20 years. The updated version of the game, Diablo 3, has downloadable content (DLC as my daughters refer to it), and additional characters you can pay for. Overwatch, Activision Blizzard’s newest hit game releases animated shorts to build interest in characters, has built in loot boxes for extra gear and additional outfits for your favourite characters all of which represent additional revenue streams.

Therapeutic Categories Outlook: Comprehensive Study

Thanks to a subscriber for this encyclopedic 2534-page (95.7mb) report focusing on evolving trends in the biotech sector. This is a very detailed report which I recommend downloading and saving because I anticipate it being a reference guide for me over the next year and possibly longer. Here is a section on pain medication:

There are so many lawsuits against opioid manufacturers that it is hard to keep track of all of them. These suits stem from all levels of government (cities, counties, states), as well as private parties and organizations (e.g. NFL). Opioid manufacturers today are viewed similarly in public opinion to cigarette manufacturers in the 1990s.

In October 2015 for the first time a doctor was convicted of murder for patient opioid overdose and was sentenced to 30 years. Other similar suits are in progress.

Insys’s Subsys (sublingual fentanyl spray) began to decline after experiencing strong sales growth over the first few years since launch. In December 2016 several senior executives were indicted over fraudulent sales practice.

The FDA has already approved one immediate release and nine extended-release opioids with abuse deterrent claims; with more likely on the horizon. As such, the field is becoming very competitive.

Market leader OxyContin has been in decline for the last two years, from ~450k scripts/month to ~260k scripts/month currently.

Newly launched abuse deterrent opioids are priced at 2-4x that of OxyContin before adjusting for discounting.
In a July 2017 report, ICER found abuse deterrent opioids to not be cost effective.

The USA’s opium epidemic has received a lot headlines, not least because on a per capita basis the USA consumes three time more opiates than Europe and six times more than Asia. This is not an issue specific to opiates but to prescription drugs in general. I remember arguing with pharmacists in Ireland about needing to buy 12 ibuprofen tablets instead of 6, whereas in the USA they are truly an over the counter drug and packages of 1000 are the norm.

Email of the day on feudalism in the modern era

I was thinking back to our dinner at the club in LA, and remembering that you stated that the Princes of the Sauds owed allegiance to their King, comparing them to the Barons of Europe in the middle ages. You said that sooner or later, the finances of the Kingdom would have to be enhanced, and that the Princes would be called upon to do so, just as the Barons of long ago were required to collect taxes and give treasure to the Crown. The parallels between today in the Kingdom of Saudi Arabia and those days so long ago are amazing!

We have now seen the first round of the tax collection begin, and those who were arrested were quite likely opposing the new "taxes", if not plotting actual rebellion (in which case they will almost certainly be executed). There is a clear message here for the rest of the Princes...

Saudi Arabia has been held together by a series of transfers and concessions to families and tribes that agreed to set aside their enmity in return for a share in the nation’s oil wealth. That worked well as long as the population was small and oil revenues trended higher amid a century of oil’s dominance of the global economy.

Britain risks a nuclear dead end by spurning global technology leap

Thanks to a David for this article from Ambrose Evans-Pritchard in the Telegraph. Here is a section:

A few million will be put aside for ‘blue sky’ research but the real money will go to a consortium led by Rolls-Royce to develop a series of 440 megawatt SMRs for £2.5bn each, drawing on Rolls’ experience building PWR3 reactors for nuclear submarines. The company bills it as part of a “national endeavour’ that will create 40,000 skilled jobs. It requires matching start-up funds of £500m from the state.

I find myself torn since these ambitions are commendable. They revive a homegrown British sector, akin to the success in aerospace. It is exactly what Theresa May’s industrial strategy should be. Rolls-Royce is a superb company with layers of depth and a global brand. It could genuinely hope to capture an export bonanza.

Yet the venture looks all too like a scaled-down version of Sizewell, plagued by the same defects as the old reactors, less flexible than advertised, and likely to spew yet more plutonium waste.

Rolls Royce insists that the design is novel and can slash costs by relying on components small enough to be manufactured in factories. “Everything can be cut down to size and put on a lorry,” said a spokesman.

Rolls-Royce has said the design can slash costs by relying on components small enough to be manufactured in factories It aims for £65 MWh by the fifth plant, dropping to £60 once the scale is ramped up to seven gigawatts (GW), with exports targeting a putative £400bn global market.

A decade ago the UK went from being an oil and gas exporter to an importer, as the North Sea oil fields hit peak production, and the cost of production began to rise. That represents a considerable headwind to growth from a sector which had been a tailwind for decades previously. When people bemoan declining living standards and the rising cost of living, one of the first places to look has to be the energy sector and absence of a clear strategy to promote energy independence.

Ride is not over after Uber catalyst

Thanks to a subscriber for this report from Deutsche Bank focusing on ride sharing investments. It’s dated July 14th, but the points made are equally relevant today. Here is a section:

Specific financial disclosures around the new JV are limited, but management did note that NewCo will 1) be able to enter new markets outside of the current six country region, 2) the new entity has a current gross bookings run rate of $1.578B and a 5-6% penetration rate of the taxi market across the six markets and 3) that UberEATS and other logistical opportunities will be a part of this new operation. Assuming no unforeseen regulatory hang-ups, management anticipates they will have regulatory approval for the deal in 4Q17 and commence operations as planned shortly thereafter.

Ride sharing is one of the largest emerging new sectors but has so far been difficult for regular investors to participate in. Low interest rates, abundant liquidity and a dearth of yield have resulted in private companies managing to stay private much longer than anyone would have expected a decade ago. The result is that when they do eventually seek a listing what is being sold to investors is a much more mature company with less potential upside from growth.

Interesting charts November 8th 2017

Palladium rallied successfully through $1000 today for the first time since 2001. The last time it traded at this level was following a massive rally spurred by a supply shortage. On this occasion the move might be somewhat overbought relative to the trend mean but is looks better supported. A break in the progression of higher reaction lows, currently near $950, would be required to question medium-term scope for additional upside.

Melbourne Cup: Quant Style Going Max Active

Thanks to a subscriber for this report which arrived a day too late for me to post before the “race that stops a country”. Here’s to next year. This section may be of interest:

As the Melbourne Cup rolls around again for 2017, we turn our attention back to that most worthy and intellectually satisfying of pursuits: Figuring out how to take a good punt at the races. Despite the lacklustre performance of the Macquarie Quant Halpha Model at the 2016 Melbourne Cup, we believe that fundamental approach behind the model – to pick undervalued horses rather than those with the greatest absolute probability of winning – remains the rational objective for the fiscally minded punter. Our model does this by identifying factors that other punters systematically overvalue.

For example, punters tend to over-value the form of a horse. Hence, while horses with good form are indeed more likely to win, the odds offered on these are typically too short to justify them as a systematically profitable bet. As with our standard Macquarie Quant Alpha Model, the Halpha model is designed to statistically capture inherent biases in the preferences of other market participants. These biases skew both betting odds and stock prices away from fair valuation. Quantitative models such as the Quant Halpha Model (and our regular Alpha Model) then takes advantage of these inefficiencies by betting (or trading) against the direction of the skew.

In order to improve the confidence and robustness of the Halpha model, this year, we have a (not-so-secret) secret weapon: More data. Thanks to Luke Byrne and Jared Pohl, the fine folks behind Kaggle’s Horses for Courses dataset, we have been provided access to data for an additional 3,700 horse races from 2017 to complement the existing dataset of 3,400 races from 2016. The expanded data sample both allows a larger training set to construct the Halpha model, and enables us to partition out-of-sample validation and test sets.

While inventing strategies for horse-racing betting markets is mostly just for a bit of fun, the quantitative processes we apply here (i.e. identifying the forecast parameters and detecting pricing inefficiencies) largely reflect those used to address more sophisticated cash equity markets. In comparison to the latter, betting markets provide a cleaner prediction environment based on behavioural biases with less interference from macroeconomic cycles and idiosyncratic news-flow. As such, the Halpha model provides a useful didactic tool for exploring underlying concepts behind quantitative equities models.

I have fond memories of the Melbourne Cup from my time living downunder in 1999/2000 and thought this report would offer a retrospective look at might have worked and how to plan for next year’s speculation. Max Dynamite placing in today’s race will have proved at least a particular comfort for the Macquarie team’s buy low strategy.

The World Stands in Line as the iPhone X Goes on Sale

This photo montage captures the enthusiasm for Apple’s iPhone X. Here is a section:

The $1,000 price tag on Apple Inc.’s new iPhone X didn’t deter throngs of enthusiasts around the world who waited—sometimes overnight—in long lines with no guarantee they would walk out of the store with one of the coveted devices.

Apple briefly became the U.S.’s first $900 billion company on the day the new smartphone went on sale.

Consumers have understandably been delaying purchases until the X was launched. After all why fork over $700 for a second-rate version when the feature laden anniversary edition is only six weeks away. Glass on front and back and rumours that the augmented reality has been toned down to speed up production are unlikely to deter initial enthusiasm for the device not least as the new emoticons are designed to appeal to the young hip crowd.

Alibaba Caps $250 Billion Rally With Accelerating Sales Growth

This article by Lulu Yilun Chen for Bloomberg may be of interest to subscribers. Here is a section:

Alibaba Caps $250 Billion Rally With Accelerating Sales Growth – Alibaba’s “new retail” plan carries a simple premise -- to combine its online merchants with a vast swathe of physical stores now divorced from the internet, stripping out layers of profit-sipping middlemen and boosting Alibaba’s e-commerce in the process. Those outlets double as storage and delivery centers.

But the execution involves a battery of expensive and time-consuming investments: buying into department stores such as Intime, setting up “smart” grocery stores like Hema, investing $15 billion into expanding its delivery network into remote regions, and enlisting some half-a-million mom-and-pop stores that now serve the countryside.

Alibaba is trying to transform the way retailers large and small manage their inventory based on real-time demand. And drawing more physical customers into its network boosts its own online orders and provides abundant data to target future consumers.

Guangzhou’s old town is a picture of the commercial reality represented by the marriage of social media and physical stores. There are coupons available for almost every purchase on WeChat, JD.com or Alibaba that can only be redeemed in store. This has delivered almost overnight a realization that customer service is what drives customer flow. Coupled with on demand manufacturing China is rapidly advancing a modern shopping experience that retailers in the rest of world need to pay attention to.

Facebook, Twitter, Google to Tell Congress How Russia Meddled

This article by Steven T. Dennis, Sarah Frier and Gerrit De Vynck for Bloomberg may be of interest to subscribers. Here is a section:

Lawmakers are focused on whether there was any overlap between the Trump campaign and the massive Russian effort to flood Americans’ social media feeds with fake news and fake ads.

Facebook plans to tell lawmakers that 80,000 posts came from 470 fake Russian accounts and that it closed 5.8 million fake accounts from all sources in October 2016 alone. Fake Russian accounts on Facebook’s Instagram posted an additional 120,000 pieces of content, the company will tell lawmakers.

At the same hearing, Twitter Inc. will say it has suspended 2,752 Russian-linked accounts, far more than it previously disclosed, according to testimony obtained by Bloomberg News. Alphabet Inc.’s Google plans to say the impact on its sites was much smaller, with $4,700 worth of Russian-linked ads, compared to the $100,000 Facebook disclosed.

There is no doubt that foreign interference in the electoral process of another country is almost universally going to be greeted with hostility and not least when it is so openly pursued. Russia was probably betting that it could pursue its geopolitical goals with less interference from a Trump administration than a Clinton one but that was a risky strategy when it must have known what the political blowback would be when it actions were discovered.

Amazon Threat Causes Shakeout in the Health-Care Industry

This article by Robert Langreth, Jared S Hopkins, and Spencer Soper for Bloomberg may be of interest to subscribers. Here is a section:

Analysts have speculated that Amazon could soon enter the business of selling prescription drugs, threatening to disrupt retail drugstores, drug wholesalers, and the pharmacy-benefits management business. While Amazon has never publicly commented on what its plans may be, CNBC reported this month that the Internet giant could make a decision about selling drugs online by Thanksgiving. The network didn’t name its sources.

McKesson slid 5.2 percent at 4 p.m. in New York, while AmerisourceBergen shares fell 4.2 percent and Express Scripts sank 3.7 percent following the report on Amazon’s state licenses by the St. Louis Post-Dispatch.

Bloomberg News confirmed that Amazon had obtained wholesale-pharmacy licenses in at least 13 states, including Nevada, Idaho, Arizona, North Dakota, Oregon, Alabama, Louisiana, New Jersey, Michigan, Connecticut, New Hampshire, Utah and Iowa. An application is pending in Maine. Some of the licenses were obtained late last year and some this year.

Amazon doesn’t make money from shipping products in the USA and makes a loss on doing the same elsewhere which helps to explain why it can continue to grow market share at the expense of conventional companies. It depends on its webservices business to provide profits even though the online retail business accounts for the vast majority of turnover. However, it is the fact that Amazon has leeched earnings from other sectors to feed its revenue growth which is what investors are betting on which has contributed to the consistency of the advance since 2015.

This article by Rich Hardy for Newatlas.com may be of interest to subscribers. Here is a section:

In the team's early experiments with base editing a specific mutation associated with the disease hemochromatosis was successfully fixed. No unwanted off-target effects were identified and the base editor enzyme operated with greater than 50 percent efficiency.

"We are hard at work trying to translate base editing technology into human therapeutics," Liu says.

The second new CRISPR innovation revealed recently comes from a collaborative team of Broad Institute and MIT scientists. For the first time the team discovered a way to accurately edit RNA base pairs in human cells.

Dubbed "REPAIR" this system also focuses on base editing but this time is targeted at RNA. Unlike permanent changes to DNA, RNA is much more ephemeral and even reversible. The ability to edit RNA in human cells opens up an entirely new world of disease treatments targeting conditions including diabetes and IBD.

"REPAIR can fix mutations without tampering with the genome, and because RNA naturally degrades, it's a potentially reversible fix," explains co-first author David Cox.

CRISPR represents a paradigm shift for the genetics industry because it reduces the cost and time required to experiment with how to edit DNA. When I visited the MIT genetics labs a year ago it was clear that what was next to near impossible five years ago is now something doctoral students can achieve with ease on a daily basis.

Deep Dive into Digital Era of Gaming

Thanks to a subscriber for this report from Barclays which may be of interest. Here is a section:

Gaming data points available today point to an industry facing challenges: The number of physical games sold in the US has declined every year for the better part of the last decade, the install base of consoles is well below the prior cycle peak, and the physical attach rate of software is below where it was in the last two console cycles. However, this is the old way of analyzing this business and in the new “Digital Era” of video games, the business has shifted from one that is hit-driven and reliant on physical retail to an industry that is largely online (over 60% digital and could arguably shift completely online longer term), more recurring and predictable, more monetize-able, and significantly more profitable.

When we consider that the number of games sold as digital copies continues to grow at 20- 30% each year, notably the market for console software is actually growing – albeit at a single-digit rate. Add to that, the install base of hardware continues to progress towards 100mn+ HD units and, while the physical attach rate of software is below where it was in the last two console cycles, the focus on deeper engagement and higher player monetization through digital content appears to be largely offsetting the impact of fewer game sales. We remain optimistic that newer hardware including Nintendo’s Switch and Microsoft’s Xbox One X can re-invigorate the market for games and are encouraged by some early trends. US retail sales are tracking up mid-single digits year over year in 2017 and, adjusting for sales of digital games, it appears that the number of games sold each year in the US is stable y/y.

In the Digital Era, gaming content will always be available and players will have access to games in more ways than ever. The industry will become far more global and fragmented across devices than before, which will increase the potential audience for gaming content substantially. We are cautiously optimistic on the potential for traditional video game publishers to further penetrate the rapidly-growing markets in China and on Mobile, however, and we remain on the sidelines regarding the emerging interest in eSports and VR. Nonetheless, we still believe the value proposition of games remains very high relative to other forms of media and we are encouraged that the new revenue TAM in the Digital Era is dictated only by the amount of time players have to engage with games, rather than by the number of consoles in their hands.

Gaming is evolving into a much larger industry than movies. Audiences at theatres continue to decline, not least because of the lackluster “cookie-cutter” nature of many movies but also because audiences have more to do and have both online games and content available 24/7. That represents a significant migration within the media sector which is easily observable in the performance of respective shares.

Machine Learning in Finance

Thanks to a subscriber for this how-to report from Deutsche Bank covering quantitative strategies and how they are applied to finance. Here is a section from the introduction:

Machine learning is everywhere
“Machine learning” repeatedly appears in the news, from the game of go to autonomous cars: what can those algorithms do for us in finance?

Supervised learning and its pitfalls in finance
In this first report in the series, we focus on supervised learning and note that while machine learning is very relevant to us, there are dangerous pitfalls, sometimes specific to the type of data we deal with. In particular, we examine penalized regression (lasso and elastic net), decision trees, and boosting – we also mention, in passing, support vector machines and random forests.

Application to the Japanese equity market
To make things more concrete, we try to use those algorithms to combine the investment factors in our database in order to build a stock ranking system for the Japanese market; this shows the limitations and pitfalls of traditional machine learning practices in finance.

Long Term Capital Management represented something of a genesis for quantitative strategies and their sophistication has been enhanced considerably since. The pace of adoption has accelerated in the last few years as the breadth of data from both conventional and unconventional sources has increased at an exponential rate and companies like Google and Baidu have demonstrated in real terms what is possible with these tools.

Investment Implications of the Final Frontier

Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section:

We estimate that the ~$350b Global Space Industry will grow into a $1.1+ Tr Global Space Economy by 2040. However, there is significant execution risk, and we, accordingly, estimate a wide range of potential outcomes, from ~$600 bn (-60 bps v. Global GDP) to ~$1.75 Tr (+400 bps v. Global GDP). Working with our aerospace & defense, internet, satellite, and telecom analysts, we estimate a $400 bn+ incremental revenue opportunity from providing internet access to under- or unserved parts of the world, and a ~$725 bn revenue opportunity for internet companies focused on social media, search/online advertising, and, in particular, e-commerce, if global internet penetration reaches 100%. Ultimately, this will depend on the success of the new low Earth orbit (LEO) satellites from players like OneWeb and SpaceX.

In the short to medium term, most of the value of the industry is linked to internet bandwidth. Satellite broadband is responsible for ~50% of the Global Space Economy, and ~70% of our Bull Case. The demand for data is growing at an exponential rate, while the cost of access to space (and, by extension, data) is falling by orders of magnitude. However, over the long term, the discussion expands to topics such as national security, research, deep space exploration, high speed travel, … even mining asteroids. In this report, we discuss the potential for the BFR from SpaceX to disrupt the freight transportation industry.

Space is the "ultimate high ground" for national security. With the United States military's expenditures exceeding $600 bn/ year, and global military expenditures ~$1.7 Tr, compared to NASA's budget of ~$20 bn, there appears to be substantial room to increase the investment in space. While we expect the topic of space to increase in importance, our view is balanced by a recognition of realworld budgetary constraints, and other priorities.

How do companies that depend on the number of internet users reach the 3 billion or so potential customers not already under their purview? For leading technology/social media companies it’s a big question because it is what their continued organic growth depends on. That is why investment continues to pour into space related ventures.

Thanks to a subscriber for this invaluable primer from JPMorgan covering the evolution of quantitative strategies in a world where the quantity of data is exploding. Here is a section:

Machine Learning methods to analyze large and complex datasets: There have been significant developments in the field of pattern recognition and function approximation (uncovering relationship between variables). These analytical methods are known as ‘Machine Learning’ and are part of the broader disciplines of Statistics and Computer Science. Machine Learning techniques enable analysis of large and unstructured datasets and construction of trading strategies. In addition to methods of Classical Machine Learning (that can be thought of as advanced Statistics), there is an increased focus on investment applications of Deep Learning (an analysis method that relies on multi-layer neural networks), as well as Reinforcement learning (a specific approach that is encouraging algorithms to explore and find the most profitable strategies). While neural networks have been around for decades10, it was only in recent years that they found a broad application across industries. The year 2016 saw the widespread adoption of smart home/mobile products like Amazon Echo11, Google Home and Apple Siri, which relied heavily on Deep Learning algorithms. This success of advanced Machine Learning algorithms in solving complex problems is increasingly enticing investment managers to use the same algorithms.

While there is a lot of hype around Big Data and Machine Learning, researchers estimate that just 0.5% of the data produced is currently being analyzed [Regalado (2013)]. These developments provide a compelling reason for market participants to invest in learning about new datasets and Machine Learning toolkits.

Over the years I’ve seen a great deal of commentary about the petrodollar and the oil economy and no doubt that has been lynchpin of economic growth for much of the last century. After all every country uses oil but not every country produces it and the fact it is denominated in Dollars gives the USA, as the onetime largest consumer, an important advantage. However, if we look forward rather than backward, there is a compelling argument for considering that the data driven economy is what is likely to drive economic growth in future.

Xi Skips Old Growth Pledge as China Seeks Quality Not Quantity

This article from Bloomberg may be of interest to subscribers. Here is a section:

"China’s policy makers are likely to tolerate growth to have another leg down to 5 to 6 percent in the next five years, so that they could have bigger room to fix the structural problems and make growth more sustainable," Hu wrote.

That’s in line with earlier messages of tolerance of slower growth in exchange for stable development. Xi told a meeting of the Communist Party’s financial and economic leading group last year that China doesn’t need to meet the objective if doing so creates too much risk, Bloomberg News reported in December.

Xi’s speech, which ran for more than three hours and mapped out a grand strategy for China’s development by 2050 implies "a change in growth and development objectives," said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing.

The party is seeking to share "growth and prosperity for the majority of people through reformation of income distribution," Chen said

The larger an economy becomes the more difficult it is to sustain double digit growth rates. China is a perfect example of this and its size is a clear example for why smaller economies like India or the Philippines are currently outpacing its expansion.

Market and Volatility Commentary

I asked around for this note from Marko Kolanovic for JPMorgan back in June but it finally turned up in my inbox today. Despite the fact the trading advice is dated, the discussion of the animating factors behind low volatility remain valid and I commend it to subscribers. Here is a section:

Low Volatility is not a new normal or fundamentally justified – it is result from macro de-correlation and massive supply of volatility through yield generation products and strategies. Finally, Big Data Strategies are increasingly challenging traditional fundamental investing and will be a catalyst for changes in the years to come.

And

What is really driving the low volatility? As we discussed recently low correlations (driven by quant flows, sector and thematic trading) are temporarily reducing volatility by 2-4 points, and a massive supply of volatility pressures implied and extension realized volatility by another 2-4 points. We estimated that supply from yield seeking risk premia strategies grew by $1Bn vega (30% of the S&P500 options market). In addition to these, large inflows in passive funds put further pressure on volatility. Keep in mind that passive investors almost never sell. Quant investors don’t take large directional bets and don’t overreact either (at least not for the same reasons humans do). Regardless of those, we think current low levels of volatility is not a new normal and will not last very long given the amount of leverage, rising rates, and the approaching reduction of central bank balance sheets.

Volatility has not increased to any meaningful extent since April but there have been occasional pops on the upside which have not been sustained. These occurred in May, June and August so it has been two months since the last one.

Amazon to make sportswear push in industry-jolting move

This article by Lindsey Rupp and Daniela Wei for Bloomberg may be of interest to subscribers. Here is a section:

Amazon has developed its own brands in part because they fill gaps in its inventory. If customers are searching for a certain type of shoe or skirt, and don’t see much of a selection from established brands, Amazon wants to be able to offer its own options. Oftentimes, shoppers may not realize that the names -- such as Scout + Ro and North Eleven -- are owned by Amazon.

This also sends a message to brands reluctant to sell their full inventory on Amazon. If shoppers can’t find your products on the site, Amazon will make its own substitutes and become your competitor.

For suppliers like Eclat, forging alliances with e-commerce companies reflects shifting demand from consumers, Chiu said in a note.

“Online apparel sales accounted for 19 percent of all apparel sales in 2016, up from 11 percent in 2011,” Chiu said.

“Online sales are primed for strong growth.” Eclat expects new clients to contribute as much as 12 percent of 2018 sales, she said. The shipments to Amazon began in August, according to Chiu. “The contribution this year will be small, but the potential is high,” she said.

Amazon has a wealth of data about what people search for and can also cross reference that with what people in fact end up purchasing and returning. That puts it in an enviable position to design product lines around what people want rather than guessing what the next fashion forward idea is going to be.

Ray Kurzweil's Most Exciting Predictions About the Future of Humanity

This article from Futurism.com contains of video of Kurzweil’s presentation at SXSW which may be of interest to subscribers. Here is a section:

Kurzweil continues to share his visions for the future, and his latest prediction was made at the most recent SXSW Conference, where he claimed that the Singularity — the moment when technology becomes smarter than humans — will happen by 2045. Sixteen years prior to that, it will be just as smart as us. As he told Futurism, “2029 is the consistent date I have predicted for when an AI will pass a valid Turing test and therefore achieve human levels of intelligence.”

Kurzweil’s vision of the future doesn’t stop at the Singularity. He has also predicted how technologies, such as nanobots and brain-to-computer interfaces like Elon Musk’s Neuralink or Bryan Johnson’s Kernel, will affect our bodies, leading to a possible future in which both our brains and our entire beings are mechanized.

This process could start with science fiction-level leaps in virtual reality (VR) technology. He predicts VR will advance so much that physical workplaces will become a thing of the past. Within a few decades, our commutes could just become a matter of strapping on a headset.

Technological innovation is occurring not only at a rapid pace but is affecting many different areas at once. Nvidia’s CEO believes the CPU is going to be left in the dust by the GPU which is being used in everything from VR to Ethereum mining, artificial intelligence systems and self-driving cars. At the same time, the evolution of cloud computing and quantum computing means the market for computing as a service is on a growth trajectory.

An Investor's Guide to Understanding Gene Therapy: A Paradigm Shift Whose Time Has Come

Thanks to a subscriber for this heavyweight 239-page report from Raymond James which may be of interest. Here is a section:

What started off as a clinical off-shoot of molecular biology in the 1970s has moved from a therapeutic concept to a viable therapy to address various rare and not so rare genetic diseases. While the gene therapy field has gone through nearly three decades of ups and downs, in our opinion, we are at the cusp of ushering in a new era of therapies that can address the underlying biology of many inherited disorders.

Two therapies have already been approved for commercialization in Europe, although calling either a commercial success is a stretch. UniQure’s Glybera, the first approved in Europe in 2012, experienced extremely limited usage in the commercial setting and was withdrawn from the market early this year. GlaxoSmithKline’s Strimvelis, approved in 2016 at a price tag of $594,000 euros (about $665,000 USD), is currently treating patients with ADA deficiency, although given the size of the patient population, we see this platform more as a good will gesture as compared to a robust money generating machine.

That said, we view these two products largely as proof of concept therapeutics whereby clinical trials were able to show efficacy and long-term safety, both of which helped clear regulatory hurdles with flying colors. While the pessimist might view the turbulent history of the gene therapy space as more of what’s to come, we view this field as a potential revolution. In short, within the next few years, we expect multiple U.S. approvals of gene therapy products…

Subscribers will be familiar with my enthusiasm for the immuno-oncology sector which is rapidly approaching commercialisation and has been the focus on enthusiastic M&A activity. Car-T cell reprogramming is an exciting field which has led to considerable success in previously untreatable leukemia and research is now underway to employ similar strategies in solid tumors.

JD Logistics Launches World's First Unmanned Parcel Sorting Centre

Disintermediation was the buzzword of the internet during the 1990s but the trend on cutting out the middle man continues as the number of hands touching an item between the manufacturer and the end consumer continues to shrink.

Funding Battle Heats Up for World's Strongest Material

This article by Andrew Marc Noel for Bloomberg may be of interest to subscribers. Here is a section:

“Our revenue is starting to come through but it’s not substantial enough yet to offset the costs in the business,” Applied Graphene Chief Executive Officer Jon Mabbitt said in a phone interview, adding that its number of graphene-related projects has quadrupled to about 100 during the past year. “The momentum is building and the U.K. is doing pretty well."

Applied Graphene has little competition in its specialty of using the material in coatings and composites, according to the CEO. The company is working with about 50 manufacturers including Sherwin-Williams Co. on displacing traditional additives like chromates, phosphates and glass flakes used by coatings industry.

Graphene is often referred to a wonder material and for good reason. However rather than speculate on the myriad uses it can conceivably be put to the obstacle to widespread adoption has been mass production. That is the area where the majority of R&D money is being spent. A race is on to gain market share as the sector evolves and explains why small companies are attempting to source fresh capital.

India's Digital Leap - The MultiTrillion Dollar Opportunity

Thanks to a subscriber for this highly educative heavyweight 124-page report from Morgan Stanley which may be of interest. Here is a section:

Digitization is that idea in India, right now. The government and the Central Bank are on a mission to rapidly formalize and financialize the Indian economy. India has introduced a universal biometric identification system (Aadhaar), initiated measures to boost financial inclusion (Jan Dhan), moved to a new fully online value-added goods and services tax system and implemented real-time payment systems (Unified Payments Interface and Bharat QR). Coupled with rising smartphone penetration, likely doubling from 300 million to nearly 700 million by 2020, these changes are driving India's digitization. We expect a step change in India's per capita income, banking system and stock market performance over the coming years. The channels of change include more financial penetration,
greater tax compliance and increased credit to micro enterprises and consumers.

The result could be a multi-trillion dollar investment opportunity. Aside from the near-term teething issues involved in execution of such big changes and other cyclical problems faced by the economy, there is scope for visible shifts in economic activity starting in 2018 eventually leading to India being a) the third-largest economy in the world with a GDP of US$6 trillion, b) among the top five equity markets in the world with a market capitalization of US$6.1 trillion and c) the country with the third-largest listed financial services sector in the world with a market cap of US$1.8 trillion by 2027. We also expect India's consumer sectors to add about US$1.5 trillion to their current market cap of US$500 billion over this period.

There are implications beyond India. The concomitant increase in e-commerce, consumption basket, financial products and investments will make India a significant market for global corporations. Most importantly, if India succeeds, it will become the template for other emerging nations. While increasing financial inclusion has been the policy objective across emerging nations, India can provide leadership with its unique model. Hence, it is very important for corporates, investors and policymakers across the globe to observe and understand these developments in India. Indeed, there may be lessons for developed countries too.

Governance is Everything but it is not an absolute designation. Governance is all about the trajectory of policy and in India we can unabashedly say the trend is upwards. That is of course in full realisation that is it coming from a low base.

More Lean, More Green

Thanks to a subscriber for this report from Goldman Sachs dated June 5th which is no less relevant today and may be of interest to subscribers. Here is a section:

We expect the costs of wind and solar to fall below the level of European power prices in the early 2020s (Exhibit 4). As costs fall below the price of the marginal technology, we expect utilities to ramp up their renewables installations, to keep/gain market share in the generation mix. We expect this to significantly change the generation mix in Europe, and would expect thermal technologies (mainly coal and gas) to be negatively impacted in terms of output. We would expect most governments (aside from those keen to protect a particular technology, such as domestic coal) to support this, as it should help reduce carbon emissions and lower electricity tariffs.

Profits for wind developers/manufacturers to accelerate We estimate that the reduction in costs for wind/solar that we forecast will trigger a 30% step-up in annual global renewables investment (MWs) globally, post 2020, for the main European developers (Exhibit 7). We expect this trend to accelerate net income growth to c.2.5% (2017-36E) from 1.5% currently (Exhibit 8).

For the European wind turbine manufacturers, we expect an average step-up in annual revenues of c.17% globally over 2017-36E, vs. 2017E (9 pp higher than previously anticipated), boosting annual net income by 58%. We estimate that this will support an equity value c.15% higher than we previously anticipated for the manufacturers.

Our forecasts assume a significant change in the generation mix only in Europe: therefore, we would see upside to our renewables estimates if we were to extrapolate this globally.

When thinking about the march of technology we need to force ourselves to think about the consequences of something that is happening today on the future. The pace of innovation is accelerating; often in an exponential manner so the linear trajectory of our personal experience is often not the best way to think about the how markets will evolve. It would be easy to look at the wind or solar sector today and conclude it is not yet competitive but technology is changing so quickly that it is almost inevitable it will be cost competitive in future. That is the whole point of the exponential way of thinking Ray Kurzweil pioneered.

Micro-grids at the threshold

Thanks to a subscriber for this report from Berenberg Thematics which may be of interest. Here is a section:

Batteries allow micro-grids to tap multiple revenue streams: Storage is helping micro-grid to transition beyond suppliers of just back-up power. Aggregation of storage and generation assets within a micro-grid creates a VPP and is capable of providing much-needed resiliency services to the central grid. Demand for these services is more than doubling every five years due to rising renewables in the generation mix. In Europe, this trend will likely continue considering targets to increase renewables by 20% by 2020.

Block-chain and batteries make electricity trading possible: Utilities in the US and Europe are trialling block-chain technology, which, coupled with storage, can enable electricity trading within and also between micro-grids. Unhindered electricity trading is necessary if we are to overcome the intermittent, geographical and seasonal limitations of renewables. Batteries only offer a limited solution as overcoming these issues in the absence of fossil fuel generation would need uneconomic oversizing of storage capacity.

Smart grid will be based on storage, micro-grids and electricity trading: We forecast the grid-connected micro-grid market globally to grow to $10bn by 2021 from under $0.5bn in 2016. Battery storage (residential and large) is estimated to play a major role and we expect 30GWh of micro-grid, which translates into a $5bn market opportunity by 2021. Fuel cells could be important for micro-grids as they are the most efficient generation technology – 15% adoption of fuel cells in microgrids will translate into 7.5Gw of demand and a market worth more than $2bn.

Electricity traders have represented one of the largest demographics at The Chart Seminar over the last few years. At least part of the reason for that interest in Behavioural Technical Analysis is because it is a market with a bewildering array of fundamental inputs; coming with a slew of local considerations which contribute to volatility. That is before one considers the innate volatility of the energy markets. Therefore, an understanding of crowd psychology, the rhythm of markets and how one market can affect another are valuable tools which are going to be all the more important as the energy markets fracture with the growth of microgrids.

Chinese EV market nearing 2% penetration

This article from mining.com may be of interest to subscribers. Here is a section:

In 2016 Chinese electrical vehicle makers represented 43% of the global EV market, or 873,000 units, overtaking the United States for the first time, according to a July report by McKinsey & Company. The report notes that not only did China up its share of the EV market by 3% compared to 2015, it also made gains on the supply side of EVs including components such as lithium-ion batteries and electric motors. "One important factor is that the Chinese government provides subsidies to the sector in an effort to reduce fuel imports, improve air quality, and foster local champions," McKinsey explained.

The Chinese government has announced that "new energy vehicles" (NEVs, which includes hybrids) should account for 8% of the passenger vehicle market by 2018, 10% by 2019 and 12% by 2020, according to EV Volumes.com.

Anyone who has spent any time in Beijing over the winter knows how badly the entire north east of the country needs to combat air pollution. On my first strip in 2005 I developed a cough as if I have been smoking my entire life that only let up once I got back on the plane home. If anything, the air is worse today than it was then.

Missile Defense: Money Well Spent; Budgets Unlikely to Stay Flat

Thanks to a subscriber for this report from Deutsche Bank which may be of interest to subscribers. Here is a section:

The threat from expanding missile technology by potentially adversarial nations is on the rise and has been since the early 2000s (see Figure 3). The most visible signal of that being the acceleration in missile technology breakthroughs and launches by North Korea. On the back of this accelerating tension is a rising tide of political support. A bipartisan call for higher missile defense spending seems to be gaining traction, with the "Advancing America's Missile Defense Act of 2017" gaining 27 cosponsors in the Senate (21 Republicans, 5 Democrats and 1 Independent) introduced in May 2017. The bill laid out a few points for its rallying cry, but in particular drove home that a 23% decline in Missile Defense Agency budget since 2006 (while Iran and North Korea activity was going in the opposite direction) needed to be corrected. In the Bill, there is explicit language to: 1) increase the number of ground-based interceptors (by 28 with expansion to 100 interceptors vs. the 44 scheduled to be in place at the end of 2017, 2) reintroduce the development and deployment of space-based missile defense sensors (e.g. Space Tracking and Surveillance System--STSS), and 3) evaluation and testing of radar and sensors for the ground-based midcourse systems (e.g. LRDR) as well as the system as a whole (for which testing funding has declined over 83% since 2006). More additions are possible following recommendations from the Department of Defense's upcoming Ballistic Missile Defense Review ("BMDR") and Missile Defeat Review ("MDR"). Even more near-term, the DoD this week released details of a budget reprogramming request for 2017 for over $400M ~5% of the Missile Defense budget) toward previously unfunded missile defense efforts consistent with the desires laid out in the "Advancing America's Missile Defense Act of 2017".

Subscribers are probably aware that I was intrigued by the many topics covered in Elon Musk’s presentation to the 68th International Astronautical Congress. There were some big claims made which highlighted the rapid pace of innovation in the space sector, the introduction of private capital has achieved. However, there are some pressing geopolitical considerations that should also be considered from this evolution.

There were a number of interesting points raised but I believe the most relevant for subscribers’ centre on what he said about shrinking the Fed’s balance sheet, the outlook for the Dollar, commodity markets, the relative attractiveness of emerging markets and his best guess for when to expect the next recession.

This article by Clara Ferreira-Marques and Gavin Maguire for Reuters may be of interest to subscribers. Here is a section:

Balhuizen said he expected the electric vehicle boom would be felt - for producers - first in copper, where supply will struggle to match increased demand. The world’s top mines are aging and there have been no major discoveries in two decades.

The market, he said, may have underestimated the impact on the red metal: fully electric vehicles require four times as much copper as cars that run on combustion engines.

BHP, Balhuizen said, is well-placed, with assets like Escondida and Spence in Chile, and Olympic Dam in Australia. BHP said last month it was spending $2.5 billion to extend the life of the Spence mine in northern Chile by more than 50 years.

Copper is currently in contango suggesting a short-term supply deficit is not what has driven prices higher over the last couple of months. The outage at Escondido which restricted supply was a consideration that contributed to the gain but was not enough to push the futures curve into backwardation. Enthusiasm about the demand vector electric vehicles represents for metals like copper, nickel, lithium and cobalt could be a better explanation despite the fact these represent medium rather than short-term considerations.

Email of the day on Chinese customer service

My first experience of Shanghai customer service was in 1987. One afternoon we were bussed around the local Friendship Stores to spend money; but, I was having no more of it and took my camera to get some shots of real locals rather than Communist Party guides! My broken Mandarin got me an invite to join some locals at a table for food and beer. I politely declined the offer of food but said I would indulge in a beer. Unfortunately, the glass had a viral bug on it which 2 hours later caused my anatomy to require plenty of boiled eggs to help reverse my problem! We were staying at a hotel on The Bund. At 5pm we asked for room service and requested lots of boiled eggs on toast, only to be told, sorry, we only serve eggs at breakfast time! 30 years ago, Customer Service was unheard of.

While in China this summer I was amazed at the improvement in customer service that has come about as a result of the online review system available via many different social media services. The fear of receiving negative reviews has literally changed behaviour beyond recognition in service establishments.

This article by Jess Macy Yu and Paresh Dave for Reuters may be of interest to subscribers. Here is a section:

The all-cash deal will see Google gain 2,000 HTC employees, roughly equivalent to one fifth of the Taiwanese firm’s total workforce. It will also acquire a non-exclusive license for HTC’s intellectual property and the two firms agreed to look at other areas of collaboration in the future.

While Google is not acquiring any manufacturing assets, the transaction underscores a ramping up of its ambitions for Android smartphones at a time when consumer and media attention is largely focused on rival Apple Inc (AAPL.O).
“Google has found it necessary to have its own hardware team to help bring innovations to Android devices, making them competitive versus the iPhone series,” said Mia Huang, analyst at research firm TrendForce.

The move is part of a broader and still nascent push into hardware that saw Google hire Rick Osterloh, a former
Motorola executive, to run its hardware division last year. It also comes ahead of new product launches on Oct. 4 that are expected to include two Pixel phones and a Chromebook.

I keep a close eye on what my children and their peers use because it is an expedient way of identifying what is going on in the wider world outside of the sanitised environment of the market. At their acting class, last week one of the kids was showing off his new Pixel phone and their school has pretty much ditched iPads in favour of Chromebooks. The reason for that decision was apparently because high schools use laptops and they need to have some familiarity with them before moving up.

Proterra Catalyst E2 MAX Sets World Record And Drives 1,101.2 Miles On A Single Charge

This press release contains some impressive statistics and may be of interest to subscribers. Here is a section:

Today Proterra, the leading innovator in heavy-duty electric transportation, announced it has set a world record for driving the longest distance ever traveled by an electric vehicle on a single charge at the Navistar Proving Grounds in New Carlisle, Indiana. Proterra’s 40-foot Catalyst E2 max traveled 1,101.2 miles this month with 660 kWh of energy storage capacity. For the last three consecutive years, Proterra has demonstrated improved range and battery performance. Last September, Proterra drove 603 miles with 440kWh of energy storage, and in 2015, Proterra drove 258 miles with 257kWh of energy storage on a single charge. This year’s world record range marks exceptional performance improvements over prior years, and underscores Proterra’s commitment to innovation and accelerating the mass adoption of heavy-duty electric vehicles.

“For our heavy-duty electric bus to break the previous world record of 1,013.76 miles — which was set by a light-duty passenger EV 46 times lighter than the Catalyst E2 max — is a major feat,” said Matt Horton, Proterra’s chief commercial officer. “This record achievement is a testament to Proterra’s purpose-built electric bus design, energy-dense batteries and efficient drivetrain.”

Beyond meeting transit agencies’ range requirements, the Catalyst E2 max is poised to make a significant impact on the transit market because of its low operational cost per mile compared to conventional fossil fuel powered buses. According to Bloomberg New Energy Finance, lithium-ion battery prices have dropped by roughly 72 percent since 2010, and the economics for batteries continue to improve. Between li-ion battery cost savings and improving vehicle efficiency, electric vehicles represent the most disruptive mode of transport today.

“Driven by the best cost savings-per-mile, we believe the business case for heavy-duty electric buses is superior to all other applications, and that the transit market will be the first to transition completely to battery-electric powered vehicles,” said Ryan Popple, Proterra CEO. “Early electric bus adopters like our first customer, Foothill Transit, have paved the way for future heavy-duty applications, like motor coaches and commercial trucks. As we see incumbents and more companies enter the heavy-duty EV market, it has become very apparent that the future is all-electric, and the sun is setting on combustion engine technology.”

One of the primary arguments often trotted out to combat ambitious forecasts about the future of long haul and large passenger vehicles is the battery would have to be so large and heavy as to make the endeavor untenable.

Musings from the Oil Patch September 12th 2017

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

If a homeowner installs a charging station in his garage, there may not be much impact on the grid. However, if all his neighbors do the same thing, there could be a problem. Transformers are necessary to regulate the power flowing into a home, and they usually service multiple homes, generally four at a time. A problem is that utility companies do not know exactly how much power is being used by a particular home relative to its neighbors until a transformer fails. Upgrading transformers can be expensive and limited by weight limits for units mounted on power poles. One estimate suggests moving from a 50KVA pad-mounted transformer serving four homes to a 75KVA unit costs about $3,000.

For underground power installations, upgrading the transformer units may be easier, but not necessarily less costly. One study by the Institute of Electrical and Electronics Engineers says that the problem is at the local level. If multiple Level 2 chargers that fully recharge a car in 2-3 hours, are plugged in at the same time at night, they may prevent transformers from cooling as they are designed. Sustained excess current will eventually ‘cook’ a transformer’s copper windings, causing a short and blacking out of the homes attached to the device. This problem was observed from a study of the habits of EV owners in an Austin, Texas suburb. Over a two-month period, the residents tended to recharge their EVs at the same time – when returning from work – that coincided with air conditioning loads increasing along with the use of other appliances.

A similar study was conducted in the UK, which conducted an 18month study of resident habits when 100% were using EVs. The study’s result show that at least a third of the UK’s power grid will need to be upgraded to support an EV sales rate of 40% of new car sales by 2023. That doesn’t address the load issue if 40% of the entire UK vehicle fleet were plug-in EVs.

The rollout of electric vehicles, which is anticipated to ramp up as manufacturing capacity for both batteries and cars comes on line in the next few years, is going to put strain on the electrical grid both from a generating and traffic perspective. While it can be argued how much additional supply with be required, the introduction of charging stations to the residential environment will certainly increase the consumption of electricity at individual homes.

Yet Again?

Thanks to a subscriber for this memo by Howard Marks at Oaktree which may be of interest. Here is a section on Bitcoin:

So what’s my real bottom line?

Advocates say if Bitcoin is accepted as described above, you’ll make more than 50 times your money. Thus success doesn’t have to high probably for buying Bitcoin to have a huge expected return. This is called “lottery-ticket thinking”, under which it seems smart to bet on an improbably outcome that offers a huge potential payoff. We saw in in full flower in the dot-com boom in 1999-2000, and I think we’re seeing it in action again today with regard to Bitcoin. Nothing is as seductive as the possibility of vast wealth.

Several of the “seeds for a boom” that I listed in “There They Go Again…Again” are at work in the Bitcoin surge (a) there is a grain of underlying truth as set out above; (b) there’s the prospect of a virtuous circle: widespread demand will lead to wider acceptance as legal tender, which will lead to widespread demand; and (c) thus this tree may grow to the sky, as there is no obvious limit to this logic. None of these necessarily make Bitcoin a mistake. They merely say elements that contributed to past bubbles can be detected today with regard to Bitcoin.

Finally, Bitcoin isn’t alone. There are hundreds of digital currencies already – including electric with market capitalisations of over a billion dollars – and no limits on the creation of new ones. So even if digital currencies are here to stay, who knows which one will turn out to be the winner? Hundreds of e-commerce start-ups appreciated rapidly in the tech bubble based on the premise that “the Internet will change the world” It did, but most of the companies ended up worthless.

The key advantage government backed currencies have is the high barrier to entry in created new currencies. However, cryptocurrencies do not enjoy that privilege. It is getting progressively easier to mint new tokens and the number is proliferating. That both increases supply, which is symptomatic of market tops but it also saps demand for the established brands because new entrants are expected to perform better.

Apple Unveils iPhone X With New Display as Rivals Grow

This article by Alex Webb and Mark Gurman for Bloomberg may be of interest to subscribers. Here is a section:

Apple Inc. unveiled its most important new iPhone for years to take on growing competition from Samsung Electronics Co., Google and a host of Chinese smartphone makers.

Chief Executive Officer Tim Cook showed off the iPhone X with an edge-to-edge screen during an event at the company’s new $5 billion headquarters in Cupertino, California, on Tuesday. Cook pronounced the name "ten," but it’s written as "X." The device, coming a decade after the original model, is Apple’s first major redesign since 2014 and represents a significant upgrade to the iPhone 7 line.

At almost 2 hours the Apple event was a serious time commitment but two things stood out to me apart of course from the price. Animated emojis are something that a lot of people will appreciate but the augmented reality features will also speak directly to the younger generation.

Email of the day on Chinese online retailers and online universities

– Thank you for these questions which may also be of interest to the Collective. I reviewed the online retail sector when I was in China in July. It has developed considerably since my last visit two years ago together with online payments, banking and same day delivery services. Here is a link to comment of the Day on July 25th.

CAR-T therapies a blue-sky scenario

Thanks to a subscriber for this report from HSBC focusing on Novartis which may be of interest. Here is a section:

Kymriah indicated for refractory ALL patients, but other indications are larger. Although Kymriah is only approved in the US to treat the small number of patients with refractory acute lymphoblastic leukaemia (ALL), additional indications such as Diffuse Large B-Cell Lymphoma (DLBCL) represent a significantly larger addressable patient population. Kymriah is the first Chimaeric Antigen Receptor T-cell (CAR-T)-based treatment approved globally.

Blue-sky scenario not that much of a stretch…Over 100,000 patients die from leukaemias, lymphomas and myelomas (haematological cancers) annually in the US and Europe. They are largely, by definition, refractory to available treatments. In due course, this patient group, or a proportion of it, could be addressed by CAR-T-based treatments. Further, CAR-T-based treatments could potentially be used earlier in the treatment of cancers and potentially in some solid tumours as well. Note that these figure do not include Japan, China, or elsewhere.

…25% of refractory blood cancers, 2.5% of other cancers. In our blue-sky scenario for CAR-T treatments, an assumption that 25% of refractory blood cancers and 2.5% of other refractory cancers in the US and EU could be treated with CAR-T therapies in due course (although this would require sizeable manufacturing expansion by all CAR-T manufacturers) would yield peak sales of just under USD26bn. If Novartis garnered 50%, it would generate peak sales of just under USD13bn for Kymriah and other CAR-T therapies versus USD3.3bn that we currently forecast (27,000 patients treated versus 7,200 on our current forecast). In our view, this bluesky scenario is not an unrealistic possibility in terms of patient numbers.

Immuno-oncology is the leading growth sector within the healthcare sector because for the first time it holds out the promise of curing cancer. What is so compelling about Novartis’ newly approved drug is that it succeeded in achieving a 90% remission rate for people that failed to respond positively to conventional chemotherapy and other treatments.

3D Sensing

Thanks to a subscriber for this report from Deutsche Bank focusing on the evolution of augmented reality technology in the upcoming suite of new mobile phones. Here is a section:

It is a reflection of Apple’s influence on the smartphone market that Apple’s competitors are already lining up copycats to ship in 2018 even before the market reception to Apple’s iPhone 8 has actually been seen. By introducing facial recognition on the iPhone 8 leveraging 3D sensing, Apple is adding extra cost, but it is also enabling bezel minimisation and the fingerprint module to be removed. With the bezel removed, the real estate for adding 3D sensing is extremely small, but it looks like they have achieved an industry first – getting structured light to miniaturise on a smartphone. This is no mean feat and reflects considerable efforts since Apple acquired Primesense in 2013.

Virtual Reality relies on headsets and expensive pieces of hardware. Augmented reality works differently by overlaying graphics on the real world. That represents a cheaper solution though not quite as immersive. By being the first company to bring out an augmented reality-enabled phone Apple is breaking new ground which has historically not been its forte but does help to explain why the price of the share has been performing so admirably of late.

How a Bird Charity's Battle Against a Wind Farm Backfired

This article by Jess Shankleman for Bloomberg may be of interest to subscribers. Here is a section:

When plans for Neart na Gaoithe started being developed in 2008, Siemens AG’s 3.6 megawatt turbine was the most popular among developers. Now manufacturers are working on machines that could be four times bigger, helping companies like Dong Energy A/S build projects cheaply enough to make money at market prices. The collapse in oil prices has also helped lower offshore wind costs, by making the sea vessels needed to install projects cheaper to hire.

I’ve haven’t seen a satisfactory solution for the problem of wind turbines impact on migratory bird populations regardless of the fact offshore turbines help create artificial reefs for sea life. However, the economies of scale that can be gained from going offshore has altered the wind turbine sector beyond recognition.

Apple's Rain of Cash Washes Away Debt Doubts

This article by Lisa Abramowicz Shira Ovide for Bloomberg may be of interest to subscribers. Here is a section:

Stock investors love it, of course. Why wouldn't they? Apple is the third-biggest dividend payer in the U.S. behind Fannie Mae and Exxon Mobil Corp., which is music to any investor's ears when bonds are paying historically little. And debt investors seem to be just fine with forking their money over to the company; they've eagerly bought up multiple debt offerings from Apple so far this year, with the seventh 2017 bond sale on track to get the company's usual warm reception.

This raises longer-term risks and threats to the company that aren't highlighted often, if ever.

As long as Apple keeps churning out loads and loads of cash, all this is fine. Apple generates more cash than any other public U.S. company, and it's spending its money both to invest in its business and to return money to stockholders. Apple's spending on research and development has also increased sharply in recent years, as have its capital expenditures on things like manufacturing equipment, computer centers and its retail stores. In short, Apple produces enough cash to do everything a business is supposed to do: reward its owners, support its existing products and plan for the future.

Apple has mastered the art of milking its legions of fans by bringing out new products on a predictable schedule that iterate on previous offerings by being just better enough to justify the outlay.

Additionally, it is among an increasing number of companies that have employed an innovative strategy to bring its money home from overseas by issuing debt so that it can be returned to investors without paying corporate taxes. As the above article highlights, that policy will be fine as long as revenues remain robust.

The Times, They Are A-Charging

Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section:

In the near-term, adoption is likely to be constrained by this slightly extended payback, concerns over driving range and thus, charging infrastructure. That said, investors may be surprised at the speed at which infrastructure can be built out (Tesla has constructed 830 SuperCharger locations in 31 countries to date, expected to double in 2017). However, the short driving range (~200 miles) is likely to constrain the market to specific use cases, until battery technology improves/costs decline. We forecast 10% adoption by 2027 within the NAFTA Class 8 market.

The shorter, closed-loop nature of typical medium-duty truck routes should yield faster adoption of electric trucks vs. heavy-duty. Range is not a major concern for medium-duty trucks, given that they tend to drive much shorter routes (well below 200 miles/day), haul less tonnage, and often follow closed-loop networks, allowing for night-time charging. As such, we agree with consensus on this topic – medium-duty adoption of electric vehicles is likely to be much faster than with heavy-duty trucks. We project 15% adoption by 2027 within the NAFTA Class 5-7 market.

OEMs that offer the best payback period/total cost of ownership are likely to win share. Tesla will be a new entrant in the market, which presents risk to existing OEMs in itself (Daimler, Volvo, Navistar, PACCAR) – we believe the company that provides the best combination of average selling price with battery range/cost will win, and Tesla will have many advantages in this regard. Nonetheless, today it seems that all OEMs are developing electric trucks with range in the ~200-mile zone, which shifts the focus to the ASP. At this point, Daimler, MAN/Scania and Tesla appear to be preparing to launch electric truck offerings, so they could potentially have a head start vs. Navistar and PACCAR.

Legacy components suppliers could face significant headwinds. This centers around components that will be phased out in a fully electric world, such as the transmission (Allison Transmission) and engine (Cummins). Note that in conjunction with this report, we have downgraded Allison Transmission (covered by Nicole DeBlase) to Sell (price as of 8/31: $34.54), as we match longer-term electrification concerns with shorter-term earnings headwinds.

Intel acquired Mobileye earlier this year to gain access to the autonomous vehicle sector because cars and trucks are going to require a lot more computing power in future regardless of how quickly autonomous features develop.

Breakthrough Cancer Therapy for Dire Cases Gets FDA Approval

This article by Michelle Fay Cortez, Anna Edney and James Paton for Bloomberg may be of interest to subscribers. Here is a section:

“We’ve never seen anything like this before,” said Stephan Grupp, director of the cancer immunotherapy frontier program at Children’s Hospital of Philadelphia, the first medical center to study Kymriah in children. “I believe this therapy may become the new standard of care for this patient population.”

Novartis said that it’s made an agreement with the U.S. government to pay for the drug only when paediatric or young adult patients with the cancer respond to treatment by the end of their first month. That agreement could have implications for other drugmakers developing expensive, specialized treatments, such as one-time therapies meant to cure rare genetic diseases. Novartis said its working on similar agreements with other payers.

Kymriah will carry a boxed warning because of the treatment’s potential to cause deadly side effects, including neurological complications and what’s known as cytokine release syndrome, a systemic reaction triggered by the destruction of the cancer cells. The FDA also approved Roche Holding AG’s Actemra to treat patients with cytokine release syndrome, pointing to research that shows 69 percent of patients suffering from it improved completely after one or two doses.

It’s been a busy week for the immuno-oncology sector with Gilead Sciences announcing a bid for Kite Pharmaceuticals over the weekend and Novartis getting the go ahead for its CAR T-cell treatment today. A point I have been making for more than a year is that the first place we are going to see personalised medicine evolve is in the oncology sector. Every cancer is genetically unique and the number of types they can be categorised into is mind boggling. Even with limited tools tailored treatment programs are already the norm so the evolution of better tools not least through re-educating the immune system is a logical progression.

Musings from the Oil Patch August 29th 2017

Thanks to a subscriber for this edition of Allen Brook’s ever interesting report for PPHB. Here is a section on lithium and cobalt:

We don’t know the details behind the Morgan Stanley electric vehicle forecast, but we know there are both more and less aggressive forecasts. We wonder if those forecasters have considered the potential constraints from lithium carbonate supply. There is a greater issue with cobalt, which accounts for 58% of a battery by weight, more than the lithium in a battery, and consumes 42% of all cobalt output. The problem is that cobalt supplies are smaller and about 60% comes from the Democratic Republic of Congo, which is controlled by war lords and relies on child labor for mining the ore. The governments we will have to deal with to meet the demand for rare minerals to meet electric vehicle forecasts present many moral and financial question marks. In fact, when we were in Tibet earlier this summer, we followed Chinese trucks hauling bags of lithium carbonate from mines to shipping depots. That supply is likely committed to the Chinese electric vehicle industry, which needs it to meet its anticipated growth outlook.

As a result of the growing demand for lithium and other rare minerals, their prices are climbing, and in some cases at alarming rates. Since 2015, lithium prices have quadrupled, while cobalt prices have doubled. What will rising prices and limited availability mean for the forecasts of ever cheaper batteries?

Forecasts for where lithium and cobalt demand is going to be in 2025 are being used to drive investment in new supply today, but it takes years to bring new supply to market. In that window between when demand increases and supply responds there is room for prices to increase meaningfully; in a rerun of the Supply Inelasticity Meets Rising Demand dynamic that animated the commodity bull market from the early 2000s.

Artificial intelligence cyber-attacks are coming but what does that mean?

This article by Jason Straub from theconversation.com may be of interest to subscribers. Here is a section:

AI, however, could help human cybercriminals customize attacks. Spearphishing attacks, for instance, require attackers to have personal information about prospective targets, details like where they bank or what medical insurance company they use. AI systems can help gather, organize and process large databases to connect identifying information, making this type of attack easier and faster to carry out. That reduced workload may drive thieves to launch lots of smaller attacks that go unnoticed for a long period of time – if detected at all – due to their more limited impact.

AI systems could even be used to pull information together from multiple sources to identify people who would be particularly vulnerable to attack. Someone who is hospitalized or in a nursing home, for example, might not notice money missing out of their account until long after the thief has gotten away.

Improved adaptation
AI-enabled attackers will also be much faster to react when they encounter resistance, or when cybersecurity experts fix weaknesses that had previously allowed entry by unauthorized users. The AI may be able to exploit another vulnerability, or start scanning for new ways into the system – without waiting for human instructions.

How secure is your password? Do you use some combination of birthdays and family names to make them easily recallable? The digitisation of information that was once only held on paper means it is comparatively easy to now find out personal details for just about anyone on the web. The increasing number of thefts of the data corporations hold about clients only exacerbates the problem. All you need to do is Google someone and you will likely be surprised by what is available online. It is therefore conceivable that an AI could form a picture of your family and correctly guess your password. Wherever possible set up two-factor logins, so you get a text message with a code before you can login and do not have a password that is your name and date of birth or indeed “password1”. Best practice is that you have a separate computer only used for banking and paying bills but never check email or surf the web on it, in addition to two-factor logins.

The Fat Tech Dragon

This report by Scott Kennedy for the Center for Strategic & International Studies may be of interest to subscribers. Here is a section:

China’s embrace of intellectual property (IP) is highly positive when contrasted with the country’s original disdain for property rights of any sort and widespread violation of IP rights. However, China’s efforts to develop and obtain more IP is driven heavily by bureaucratic imperatives as opposed to market incentives. Moreover, China may now be a “large” IP country, but it is still a “weak” one. Whether one is discussing licensing and royalties, mergers and acquisitions, or dispute settlement, Chinese patents still have little commercial value.

China’s commercial success has outstripped its progress in technology innovation. Chinese companies are acquiring greater market share in high tech, particularly in the most commodified segments of sectors. The value-added contribution to manufacturing is growing in absolute terms, and domestic companies are contributing a growing share to China’s high-tech exports.

Overall, China’s high-tech drive may be characterized as “good-enough innovation.” From a negative perspective, China is investing—and may be wasting—a great deal of human capital and funding, but is still far from a leader in high tech. From a more positive perspective, China is achieving incremental progress by benefiting from its strong capacity in manufacturing, the accumulation and diffusion of tacit knowledge, and the opportunities provided by such a large market.

Regardless of the level of support they receive from their government, Chinese companies will face growing challenges in their interactions with multinational businesses and in overseas markets. Foreign governments and multinational businesses likewise need to decide how to strategically respond to China’s approach. They could take a firm stand in opposition, try to influence China’s approach at the margins, or go along with the strategy as best they can. In any case, if they are not careful, they could end up under the heavy foot of a fat tech dragon.

In addition to its race to become a centre for high tech innovation China is also intent on a “China first” policy of making sure it is producing its own semiconductors without having to rely on US, Japanese, Taiwanese and South Korean manufacturers. That raises important questions about M&A activity since so much of it is state sponsored. The reality is that if China gains the technology to produce its own semiconductors it will seek to flood the market with cheap products and that could represent a significant issue for the global tech ecosystem.

Fitbit aims to topple smartwatch kings with feature-packed Ionic

This article by David Nield for New Atlas may be of interest to subscribers. Here is a section:

Fitbit is having another crack at taking on the likes of Apple, Garmin, and LG with its newly unveiled Ionic smartwatch. The wearable packs in a bunch of tracking sensors, plus some useful extras like mobile payments, to make it the most advanced device yet to appear from the Fitbit stable.

Fitbit is describing the Ionic as the company's "first ever smartwatch," which we find a little confusing as it launched the Fitbit Blaze last year, another device that straps around the wrist to tell the time and monitor various health and fitness metrics. Is that not also what you would describe as a smartwatch?

Perhaps Fitbit just wants us to forget the Blaze ever happened, and whatever the nomenclature, the Ionic looks like being an upgrade in every department. What does distinguish it from its predecessor is support for third-party apps, so developers outside of Fitbit can build their own apps for the device.

For some people wearing a belt is enough to monitor personal shape and size. I’m not that fortunate and personally having a wrist-mounted fitness tracker twinned with a calorie counting mobile phone app has been a recipe for keeping me on a successful fitness and dietary regime.

I bought a Fitbit Blaze for Mrs. Treacy because it has the option to change wristbands which was necessary to get around her silicon allergy. It lasted about three weeks before dying. The build quality left a lot to be desired. On the other hand, I have been wearing a Garmin Vivosmart HR all year and it is still going strong.

Dear iPhone: Here's Why We're Still Together After 10 Years

This article by Brian X.Chen for the New York Times may be of interest to subscribers. Here is a section:

Many eyes are now on Apple’s 10th anniversary event for the iPhone, which is expected to be held next month. There, Apple is set to introduce major upgrades for the next iPhones, which could stoke our appetites again for the gadget. Or not.

Chief among the changes for the new iPhones: refreshed versions, including a premium model priced at around $999, according to people briefed on the product, who asked to remain anonymous because they were not authorized to speak publicly. Apple made room for a bigger screen on that model by reducing the size of the bezel — or the forehead and the chin — on the face of the device. Other new features include facial recognition for unlocking the device, along with the ability to charge it with magnetic induction, the people said.

Here’s a look back at the last 10 years of why the iPhone still has us in its grip — so much that people keep coming back for more.

Rather than think of the iPhone as a product iteration it is probably better to describe it as an ecosystem. The phone itself represents a hefty initial outlay but the AppStore, while generating considerably less revenue, acts as an anchor for the brand because apps are transferrable between phones of the same brand but push up the cost of switching.

Amazon to Cut Prices at Whole Foods as Acquisition Closes

This article by Mark Gurman and Matt Townsend for Bloomberg highlights the continued polarisation in the retail sector between those with a technological/low cost advantage and conventional stores. Here is a section:

The company said it will begin slashing prices on a broad cross section of Whole Foods groceries Monday -- the same day the $13.7 billion deal is set to close. That will start with items such as chicken, eggs, some vegetables, and some types of organic fish. Amazon reeled off a long list of other plans to combine its leading e-commerce and delivery assets with the physical locations of Whole Foods stores.

"This is a pretty impressive array of bold moves on the first day of an acquisition -- unprecedented, we would say," said Carol Levenson, an analyst at Gimme Credit.

The moves by Amazon inflame an already raging price war in U.S. groceries -- a sector known for razor-thin profit margins.

German discount grocers like Lidl and Aldi are expanding in the U.S. and Wal-Mart Stores Inc. has been investing in more discounts too. Low prices are familiar terrain for Amazon, which has operated with little profitability for more than a decade. Shares of grocery-store chains fell on the announcements.

Kroger Co. declined as much as 2.4 percent while Sprouts Farmers Market Inc. sank 2.5 percent. Wal-Mart Stores Inc., which sells the most groceries in the U.S., also dropped 0.8 percent.

Amazon will also begin selling Whole Foods branded products, including those that are part of the 365 brand, via its website, and through fast delivery services like AmazonFresh, PrimeNow, and Prime Pantry, the company said.

Amazon Prime is no longer the cheapest venue for goods but is among the most convenient. That turn to mild profitability has allowed the share to perform admirably over the last 18 months. The decision to embark on a price war following its acquisition of Whole Foods, which has historically been among the most expensive vendors, is a threat to established stores that have never had to compete on price with a company possessing Whole Foods’ cache.

“Increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work means scope for automation,” Orlik and Chen said. “Yet wage growth in China remains rapid, and if anything, medium-skilled workers conducting routine work are doing better than average.”

Technological innovation has led to the pace of development speeding up. It will not have escaped the attention of investors that the original Tiger economies were able to evolve economically much faster than the Europe or North America during the Industrial Revolution. More recently China has come from relative obscurity to be the world’s second largest economy. What used to take generations now takes decades and the pace of development is speeding up so that we may witness multiple iterations in our lifetimes. As much youngest daughter delights in telling me, she was born the same year as the iPhone.

Facebook Usage Among Teens Set to Drop in U.S

This article by Sarah Frier for Bloomberg may be of interest to subscribers. Here is a section:

“Teens and tweens remaining on Facebook seem to be less engaged –- logging in less frequently and spending less time on the platform,” Orozco said. “At the same time, we now have Facebook-nevers, many children aging into the tween demographic that appear to be overlooking Facebook altogether, yet still engaging with Facebook-owned Instagram.”

A year ago my now 11-year old wanted to text her friends, but I had no intention of giving her a phone. Ever resourceful, she gave her friends my number with the result being, she co-opted use of my phone because her class’ group chat was constantly buzzing. As a compromise, I cloned my phone, so now I have two sim cards and two handsets. All messages arrive on both phones simultaneously. She gets use of a phone and I have real-time oversight.

Sorry, Banning 'Killer Robots' Just Isn't Practical

This article by Igor Zarembow for Wired may be of interest to subscribers. Here is a section:

Weapons systems that make their own decisions are a very different, and much broader, category. The line between weapons controlled by humans and those that fire autonomously is blurry, and many nations—including the US—have begun the process of crossing it. Moreover, technologies such as robotic aircraft and ground vehicles have proved so useful that armed forces may find giving them more independence—including to kill—irresistible.

A recent report on artificial intelligence and war commissioned by the Office of the Director of National Intelligence concluded that the technology is set to massively magnify military power. Greg Allen, coauthor of the report and now an adjunct fellow at nonpartisan think tank the Center for New American Security, doesn’t expect the US and other countries to be able to stop themselves from building arsenals of weapons that can decide when to fire. “You are unlikely to achieve a full ban of autonomous weapons,” he says. “The temptation for using them is going to be very intense.”

Automation is being driven by technological innovation and, unlike chemical weapons, is applicable to just about every area of our lives. That’s an important differentiator and virtually ensures the trend will continue despite the real threats posed by the increasing autonomy of weapons of war.

Registration required

Most Recent Audio: 16 March 2018

Testimonials

High quality analysis, reporting and insightfulness delivered eloquently in plain english

T.R. 20 December 2017

Its a service I have used over many many years and have grown to trust. I find the commentary and analysis provided to be a reliable guide to market action.

C.C. 09 September 2016

FTM looks at markets globally and technically; the best.

J.P. 08 September 2016

I find David's and Eoin's analysis is refreshingly different, with it's basis in crowd behaviour combined with a relatively uncomplicated use of charts.

T.K. 30 August 2016

I want to say thanks for all your interesting charts from all over the world. You both give us a fantastic wiew from around the globe! Some examples,Valeant,Kinder Morgan,Orocobre and metals. They have all recently helped me pay my expenses and more.

L.K. 27 July 2016

I have been a subscriber since the 70's.
I have grown with your service and have no hesitation in recommending your service !!!

R.D. 19 June 2016

Experience, relevant data sourcing that is not often though about, consistency using both technical and fundamental inputs, as well as the understanding of market psychology, contrarian behaviour and sentiment.

J.E. 29 May 2016

I'm a long time subscriber and very familiar with the service!

T.M. 15 April 2016

Essential chart library plus interesting thematic comment

N.B. 06 April 2016

Good product, simple as that.

D.S. 05 April 2016

I appreciate David and Eoin's insightful, level-headed commentary.

M.N. 30 March 2016

It's a very time efficient and considered source of financial information.

H.T. 16 March 2016

I have subscribed for many years. I value David's judgement highly - he has made some excellent investment calls and his commentary is often insightful. The Chart library is a particularly useful resource.

A.L. 11 March 2016

Global scope, technical analysis, Fullers verbal.

J.P. 04 February 2016

Very long time subscriber and found service helpful in not missing major trends

S.O. 20 January 2016

I have been a long term satisfied customer myself.

C.B. 11 January 2016

Informative and consistent, good overview

R.M. 06 December 2015

Excellent daily coverage of the markets. The chart library is central to my investing. The Filter function is a gem.

D.B. 02 December 2015

Happily followed for many years

J.D. 24 November 2015

Long term subscriber, very satisified with quality of service

E.M. 21 October 2015

I am an extremely satisfied subscriber. The daily audio is an indispensable part of my day, and the chart library is a very powerful and convenient tool.